CD Calculator

How to Calculate CD Interest and Earnings

A Certificate of Deposit (CD) is a savings account that holds a fixed amount of money for a fixed period, offering a higher interest rate than a regular savings account. Here's how to calculate the interest and earnings on a CD:

CD Interest Formula

The formula for calculating the final amount in a CD account is:

$$A = P(1 + \frac{r}{n})^{nt}$$

Where:

• A = Final amount
• P = Principal (initial deposit)
• r = Annual interest rate (in decimal form)
• n = Number of times interest is compounded per year
• t = Number of years

Calculation Steps

1. Determine the principal amount (P), annual interest rate (r), term (t), and compounding frequency (n).
2. Convert the annual interest rate to decimal form (divide by 100).
3. Apply the formula to calculate the final amount (A).
4. Calculate the interest earned by subtracting the principal from the final amount.
5. Calculate the Annual Percentage Yield (APY) using the formula: APY = (1 + r/n)^n - 1

Example Calculation

Let's calculate the earnings for a CD with the following terms:

• Principal (P) = $10,000
• Annual interest rate (r) = 2.5% = 0.025
• Term (t) = 5 years
• Compounding frequency (n) = 12 (monthly)

Applying the formula:

$$A = 10000(1 + \frac{0.025}{12})^{12 * 5}$$

$$A = 10000(1.002083)^{60}$$

$$A = 10000 * 1.1331$$

$$A = 11,331.00$$

Interest earned = $11,331.00 - $10,000 = $1,331.00

APY = (1 + 0.025/12)^12 - 1 = 0.02528 = 2.53%

Therefore, after 5 years, the CD will be worth $11,331.00, with $1,331.00 in interest earned. The APY is 2.53%.

Visual Representation

This diagram illustrates the growth of the CD over the 5-year term. The green bar represents the initial deposit of $10,000, while the blue bar shows the final amount of $11,331. The yellow portion at the top of the blue bar represents the interest earned ($1,331).