A certificate of deposit is a low-risk investment with a guaranteed interest rate and payout. That level of predictability makes CDs a great place to park money you’re saving for a future financial goal, like a down payment on a house or a car.
Before investing in a CD, you should always check how much it will pay out when it matures, i.e., when its term ends and you’re free to withdraw its funds. The calculator below is an easy way to see if the CD you’re considering will meet your investment needs. Is the ultimate payout worth parting from your money for a long period of time?
CD Rate Calculator
How to use the CD Rate Calculator
The CD Rate Calculator shows how much a CD will be worth by the end of its term, based on the interest rate paid on the certificate.
You’ll need three pieces of information to use the CD Rate Calculator:
- Deposit Amount. This is the amount you’re investing in the CD.
- Annual Interest Rate. This should be the annual percentage yield, or APY, the CD is paying. The APY is the effective interest rate you’re being paid, reflecting compounding interest.
- CD Term (Years). The term is the length of time it takes for a CD to mature. 5 years is the maximum CD term offered by most banks.
Let’s look at an example of how to use the calculator, assuming the following information:
- Deposit Amount: $10,000
- Annual Interest Rate: 2.50%
- CD Term (Years): Five years
With that information entered, you’ll hit the “Calculate” button, and the results will include the “Total Amount”, which is what you’ll be paid at the end of the CD term (your deposit + interest earned), as well as “Interest Earned”, which will indicate just the interest you’ll earn over the course of the term.
Based on the information above, the Total Amount will be $11,330.01, and Interest Earned will be $1,330.01.
If you plan to roll over the CD at the end of each term, this calculator can also function as a CD ladder calculator, as you can adjust its term up to 30 years. With a 30-year term, the Total Amount in this example will be $21,153.49, with $11,153.49 in interest earned over the 30-year term.
What is a certificate of deposit?
A certificate of deposit, or CD, is a type of savings account that holds your money for a fixed period of time — usually between three months and five years. In most cases, you can’t add or withdraw funds from your CD during that time. However, you’ll earn interest on the balance.
Once the time period ends, the CD has reached maturity. At that point, you’ll get back the principal amount you invested, plus interest.
How do CDs work?
Most standard CDs have a few common features:
- A fixed term. The term is the length of time you agree to leave your money in the account until the maturity date.
- An interest rate. Most CDs will have fixed interest rates, though it’s possible to get a variable-rate CD.
- An early withdrawal penalty. If you take your funds out before the maturity date, you pay a penalty.
- A principal deposit. Depending on where you open your CD, you may be required to deposit a certain minimum.
You’ll get a disclosure statement that tells you how often interest will be paid, what the maturity date is, and how much the penalty is for early withdrawal.
How to invest in a CD
You can invest in CDs at just about any bank and credit union (or through a brokerage firm, if you have one). Depending on the institution’s procedures, you can open a CD in person, over the phone, or online. But first, compare the interest rates that different banks offer.
When you open a CD, you only make a one-time deposit. You can’t add additional funds later, except in rare cases.
How to withdraw money from a CD account
Once your CD hits its maturity date, your bank will give you three options:
- Roll over the account, plus interest, into a new CD with a new term at the same bank. (This is the default option unless you let the bank know otherwise.)
- Withdraw your money via paper check or electronic transfer into another account.
- Transfer your money into another account at the same institution, like savings or checking.
Types of CDs
Standard CDs
A short-term CD has a term of less than 12 months. If you think you’ll need the money within that time, or you’re opening your first CD, it’s a good choice.
A long-term CD has a term between one and five years. This is a better option if you’re saving for a future expense and you’re sure you won’t need the cash until then.
High-yield CDs
High-yield CDs are a little like high-yield savings accounts. They’re usually offered by online banks, which can give you better interest rates because they have fewer overhead costs.
Liquid or no-penalty CDs
These CDs let you withdraw money early without a penalty. The catch is that you don’t get unlimited withdrawals (you may have to withdraw all the funds or none of them), and the interest rates are lower than with standard CDs.
Bump-up CDs
With bump-up CDs, you can increase your interest rate during the CD term at no extra cost. If interest rates are rising, you can potentially improve your yield. Some banks may offer “step-up” CDs where the bank gives you interest rate increases on a fixed schedule.
Variable-rate CDs
These CDs have variable or changing interest rates. Your rate will either change with the market or according to a pre-set schedule. If interest rates are low when you open your CD, a variable-rate CD could be beneficial.
Brokered CDs
These are CDs you buy through an investment firm. The benefit is that you can sell them before the maturity date if you choose, with no penalty. The drawback is that they don’t always have the same security and FDIC coverage of other CD types, so they’re riskier.
Alternatives to CDs
High-yield savings or money market accounts
In addition to long-term investments, most people want liquid savings where they can access the money quickly. That’s the benefit of an emergency fund, for example; the money is there whenever the emergency happens, whether it’s in five years or tomorrow.
If you want an investment where you can withdraw money at any time without fees, a high-yield savings account or money market account is your best bet. You may not earn as much interest as you would on a CD, but you can still get competitive rates, and it’s much easier to move your money if you find a better interest rate elsewhere.
Note that money market accounts may require higher minimum deposits than savings accounts.
» MORE: Money market vs. high-yield savings accounts
Bonds
Bonds are fairly low-risk investments compared to stocks. U.S. Treasury inflation-protected securities are some of the safest bond investments, since their interest rates are adjusted for inflation. Most other bonds pay fixed interest rates.
Retirement funds
With retirement funds, like with long-term CDs, you should be pretty confident you won’t need to access the money for a while. Many, though not all, types of retirement funds charge penalties for early withdrawal before you turn 65.
However, if you want a secure investment that meets a definite need, it’s hard to beat a 401(k) or IRA.
Pay down high-interest debt
Yes, paying down debt can be a low-risk savings and investment technique. That’s because the more you pay, the more you save on the costs of the interest your lender is charging. Debt is expensive!
If you take the money you would have put in a short-term CD and pay off a credit card that charges double-digit interest, you could automatically save yourself hundreds or thousands of dollars in interest payments — potentially more than you’d earn through interest with a CD.
» MORE: How to get out of debt fast
Pros and cons of CDs
Pros
- Earn more interest than savings and money market accounts.
- Bank CDs come with FDIC insurance up to $250,000.
- Guaranteed rate of return. Rates won’t fluctuate or drop based on the market.
- More incentive to keep your hands off the account, which can be good for overspenders.
Cons
- Usually can’t switch to a higher interest rate mid-term.
- Inflation might outpace a CD’s rate of return.
- You can’t withdraw funds before the maturity date without penalties.
- CDs experience less growth over time than stocks and bonds.
FAQs
How much interest will I earn on a CD?
The exact interest rate you’ll earn with a CD depends on the market and the CD’s issuer.
Long-term CDs usually earn more in interest than short-term CDs. Besides having more time to rack up earnings, these CDs often have a higher interest rate in exchange for less liquidity.
What’s the difference between a CD and a savings account?
The main difference between a CD and a savings account is that savings accounts let you add or withdraw funds at any time. With CDs, you can usually only make a one-time deposit that you can’t touch until maturity.
Compared to savings accounts, which may or may not require minimum deposits, CDs typically have higher minimums. On the flip side, CDs usually earn more interest than savings accounts.
What’s the difference between a CD and a money market account?
The main difference between a CD and a money market account is that money market accounts are more liquid investment vehicles than CDs. With a money market account, you can make a limited number of withdrawals (typically capped at six per year) without penalty.
Also, while most CDs have fixed interest rates, money market accounts have variable rates that fluctuate over time as the market changes. This makes their prospective returns slightly less reliable compared to CDs.
Is a certificate of deposit FDIC insured?
CDs are federally insured for up to $250,000. This is the total insurance limit for the accounts you have at each bank, not the limit for each individual CD.
The FDIC covers insurance for CDs held with banks, while the National Credit Union Administration (NCUA) provides the same amount of coverage for CDs held with credit unions.
Can you lose money in a CD?
You won’t lose your principal investment with a CD. CDs are one of the safest investment options in that way.
However, if inflation rates outpace your CD’s interest rate, your money may be worth less at the CD’s maturity date than it was when you opened the CD. This is less likely with longer terms.
Are CDs worth it?
CDs are worthwhile for funds you don’t want to lose but don’t need right away. You can earn a decent amount of interest without taking on the risks associate with investing in stocks, as long as you can commit to keeping your money in the bank for a few months or years.
If you’re building an emergency fund, however, or if you want the flexibility of being able to pull from your savings when you need to, a traditional savings account is a better choice. And for super long-term savings, you may be better off padding your retirement fund.