CD Calculator

What Is a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is a savings tool offered by banks and credit unions where you deposit a fixed amount of money for a set period, earning interest over time. Common terms range from a few months up to five years. Typically, the longer the term or the larger the deposit, the better the interest rate you’ll receive. CDs are considered low-risk investments, offering higher returns than standard savings accounts but generally lower than the stock market.

While there are many types of CDs—some with variable rates or market-linked returns—this calculator is designed specifically for fixed-rate CDs.

Tax Note: In the U.S., CD interest is usually taxed as income unless held in a tax-advantaged account like an IRA or Roth IRA. You can use our IRA Calculator or Roth IRA Calculator for those specific scenarios.

Why Are They Called “Certificates”?

Originally, banks issued paper certificates when you opened a CD account—hence the name. Today, the entire process is electronic, but the term “certificate of deposit” remains.

Are CDs FDIC-Insured?

Yes, CDs offered by FDIC-insured banks are protected up to $250,000 per depositor. If you want to deposit more while keeping your funds insured, consider spreading your CDs across multiple FDIC-backed institutions. Credit unions offer similar protection through the National Credit Union Administration (NCUA).

How and Where to Buy CDs

Most banks and credit unions offer CDs. Interest rates and terms vary, so it’s a good idea to compare Annual Percentage Yields (APY) before committing. You’ll need an initial deposit, and banks may have minimum deposit requirements.

CDs can also be purchased through brokers, although additional fees might apply. When you open a CD, you’re essentially lending money to the bank, which they use for lending, operations, or reserves. Factors like the federal funds rate and institutional costs influence the rate offered.

Brief History of CDs

The concept behind CDs dates back to the 1600s in Europe, where banks issued receipts in exchange for deposits and offered interest in return. In the U.S., CDs became more structured after the 1929 stock market crash, leading to the creation of the FDIC to protect consumer deposits.

Interest rates for CDs have fluctuated over time—nearly 20% in the 1980s, around 4% in 2007, and below 1% in 2021. Rates increased again in 2023 and 2024 due to inflation, peaking above 5%, but began to fall in 2025 as inflation slowed.

How CDs Can Be Used

CDs are useful for:

• Diversifying your portfolio to reduce risk, especially as retirement nears.

• Storing money short-term for goals like buying a home or car in a few years.

• Predictable returns, thanks to fixed interest rates.

When a CD matures, you can:

• Roll it into a new CD

• Transfer the funds to a savings/checking account

• Withdraw or reinvest in a different CD

Early Withdrawals and Penalties

CDs are meant to hold funds until the term ends. Withdrawing early usually results in a penalty, unless you have a liquid CD. In some cases—especially when rates rise—it might be worth paying the penalty to reinvest in a higher-yield CD.

What Is a CD Ladder?

A CD ladder is a strategy to balance higher returns with better access to your money. Instead of putting all funds into one long-term CD, you split the investment across CDs with staggered maturities. For example, you might invest equally into 1-, 2-, and 3-year CDs. As each one matures, you can either reinvest or use the funds.

This approach:

• Improves liquidity

• Reduces reinvestment risk

• Allows you to capture rising interest rates

Understanding APY vs. APR

• APY (Annual Percentage Yield): Reflects interest earned with compounding over a year.

• APR (Annual Percentage Rate): Used for loans and credit, does not include compounding.

CDs are typically advertised with APY, which gives a clearer picture of what you’ll earn.

Compounding Frequency and Returns

The more frequently your interest compounds, the greater your return. Our CD Calculator allows you to choose different compounding intervals. For a deeper dive into how compounding works, check out our Compound Interest Calculator.

Common Types of CDs

• Traditional CD: Fixed rate and term, early withdrawals incur penalties. Large deposits ($100,000+) may qualify for higher-yield “jumbo CDs.”

• Bump-Up CD: Lets you increase your rate if market rates rise, though starting rates are typically lower.

• Liquid CD: Allows early withdrawals without penalties but usually comes with a lower interest rate.

• Zero-Coupon CD: Sold at a discount and doesn’t pay periodic interest. Returns are realized at maturity but carry more risk due to longer terms.

• Callable CD: The bank can “call” the CD before maturity, returning your principal plus earned interest. These offer higher initial rates.

• Brokered CD: Purchased through a brokerage rather than a bank, often providing more options but possibly less flexibility.

Alternatives to CDs

If you’re seeking other low-risk investment choices, consider:

• Paying Off High-Interest Debt: Eliminates guaranteed expenses and often provides better returns than CDs.

• Money Market Accounts: FDIC-insured, with some restrictions, offering slightly lower returns than CDs.

• Bonds: Low-risk debt investments issued by governments or corporations.

• Peer-to-Peer Lending (P2P): Connects borrowers and lenders online for potentially higher returns but more risk.

• Bundled Mortgages (Mortgage-Backed Securities): Traded like bonds and backed by government entities such as Ginnie Mae.

These are just a few of the many alternatives available, especially for those willing to take on slightly more risk.