Certificate of Deposit (CD) Calculator: How Much You Could Earn

Use SmartAsset’s CD calculator to see how much your CD can earn based on your deposit size, the length of the term, its interest rate and how often it compounds.

CD Calculator – Calculate your CD’s Ending Balance

CD Calculator – Calculate Your CD’s Ending Balance

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Future Value: $

Understanding CDs

Certificates of deposit (CDs) can be a safe and steady way to grow your money with minimal risk. By selecting the right type of CD, you can tailor these term-based investments to meet the needs of your financial plan and risk tolerance, while taking advantage of current market rates and annual percentage yields (APY). It also might be a good idea to consult a financial advisor when deciding whether a CD fits into your overall financial plans.

Offered by many financial institutions, such as banks and credit unions, CDs allow you to invest a predetermined amount of money for a specific time frame at a fixed interest rate. Upon maturity of the CD, your initial deposit is returned along with the accrued interest.

A CD is similar to a savings account, but CDs set themselves apart from traditional savings accounts by typically offering higher interest rates. The catch, and other major difference, is that your money must remain in the account for the entire term length. Withdrawing funds before the term expires results in a penalty. In fact, the federal government stipulates a penalty for early withdrawal, though there isn’t a maximum and fees can vary by financial institution.

Types of CDs

As you navigate the world of deposit accounts, you'll encounter several different types of CDs:

Traditional CDs: The most common variety, traditional CDs feature a fixed interest rate and maturity date. They usually come in term lengths ranging from one month to five years, though this can vary.
Bump-up CDs: Designed for rising interest rate scenarios, bump-up CDs let you increase the rate one or more times during the term. Suppose you purchased a three-year bump-up CD at a 1% APY, and after one year, the bank raises the interest rate to 1.5% APY. You can choose to "bump up" your rate to take advantage of the new, higher interest rate, though there can be stipulations surrounding this feature.
No-penalty CDs: No-penalty CDs offer lenient withdrawal options at the cost of receiving lower interest rates. Liquid CDs might be a better choice compared to traditional CDs for investors who may need to access their funds on short notice, without facing as substantial of early withdrawal penalties.
Callable CDs: Issuing banks hold the power to "call" or redeem these CDs before maturity, potentially leading to reinvestment risk if interest rates decrease.

FDIC Insurance

When investing in CDs, your principal investment is insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per bank, per account category. In addition to CDs, FDIC insurance covers money held in savings accounts, checking accounts, money market accounts and others.

How to Choose the Best CD for You

When selecting a CD, there are several key factors you’ll want to keep in mind, like term length and APY. You’ll also want to consider shopping around for different rates and even think about using a laddering strategy to get the most out of your investment.

Factors to Consider

Considering the following factors can help lead you in the direction of a suitable CD for your plans:

Term length: Align your term with your financial objectives and liquidity demands. Greater interest rates often accompany longer terms, while shorter terms offer more flexibility and liquidity.
APY: Pursue CDs with higher APYs for enhanced returns.
Withdrawal penalties: Familiarize yourself with early withdrawal terms at various banks to avoid unexpected charges should you need to pull the money out early.

Short-term CDs with lower APYs may work well for conservative investors looking for a temporary investment. On the flip side, higher-earning, long-term CDs may suit investors who are comfortable with locking in their funds for an extended period.

CD Rates Comparison

As you research various types of CDs to understand their features and benefits, you’ll want to compare interest rates from different financial institutions. SmartAsset’s CD comparison page can help you stay up to date on the current rates and terms that are being offered.

For example, if you decide to invest in a CD you may be unsure of which term and interest rate would yield the highest return on your investment. You can use a CD calculator like the one above, which can help you estimate your earnings based on different terms, interest rates and initial deposits. By comparing different CD options, you can make an informed decision.

CD Laddering

CD laddering, a strategy for layering CD returns over time, involves distributing your investments across different CDs with diverse term lengths, balancing both liquidity and high yields. You can tailor a CD ladder to your specific financial situation and goals using the terms available to you at a bank.

For instance, let's say you open CDs across subsequent terms (1-year, 2-year, 3-year etc.). This allows you to take some advantage of the long-term rates, without losing as much liquidity. But if you don't need the funds in your shorter-term CDs when they mature, then you can reinvest that money in a longer CD to get one year ahead of your longest term that's left. Then you can repeat this process as each term matures, creating a proverbial ladder of accounts.

If you’re more focused on short-term savings goals, you can set up a CD ladder with maturity dates every few months. If you have a longer time horizon, you can build a ladder with CDs that mature over the course of several years.

Alternatives to CDs

Investing in CDs may not be the best option to meet your needs, especially if you’re not comfortable locking your money up for a set period of time. Several alternatives to CDs exist, each with its pros and cons.

Here are some others that might work for you:

High-Yield Savings Accounts: High-yield savings accounts enjoy higher interest rates compared to traditional savings accounts, along with easy access to funds. However, rates may change and returns could be lower than CDs, especially in weaker rate environments.
Interest Checking Accounts: While most traditional checking accounts do not earn anything, interest-bearing checking accounts do. However, these accounts likely won’t pay as much as a high-interest savings account or CD and may charge monthly fees.
Money Market Accounts: Like high-yield savings accounts, money market accounts benefit from competitive interest rates and FDIC insurance. But they often have minimum balance requirements, limited check-writing capabilities and restricted transactions.
Investments: Investments, such as stocks, bonds, real estate, mutual funds and other assets, offer the opportunity for higher returns and increased portfolio diversification. However, they’re riskier than CDs and are vulnerable to significant fluctuations in value.
Annuities: Annuities are insurance contracts that deliver guaranteed income and tax deferral benefits in exchange for a lump sum or series of periodic payments. Just remember that annuities potentially incur costly fees, lower returns and limited liquidity, and are generally suited for building funds in retirement.

Bottom Line

A deep understanding of CD options and alternatives is pivotal when attempting to maximize your banking experience. Ultimately, when chosen with care and consideration, CDs can provide a reliable and secure return on your investment. However, it’s a very personal choice whether they are the right option for you or not. Using a calculator like this one can go a long way in planning ahead.

Financial Planning Tips

Investing in any asset, including CDs, is a personal decision. There are lots of factors to consider, from maximizing your return to understanding your appetite for risk. Working with a financial advisor can help you understand what types of investments could work for you. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Another great tool that can help your choices is to take a look at SmartAsset's investment return calculator. It can help you understand how your investments can grow over time.