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Certificate of Deposit

A certificate of deposit (CD) is a savings account offered by banks and credit unions that holds a fixed amount of money for a fixed term — typically 3 months to 5 years — in exchange for a fixed interest rate. CDs generally pay higher interest than regular savings accounts because you agree to leave the money untouched until maturity. Early withdrawal typically triggers a penalty, usually equal to several months of interest. CDs are FDIC-insured (at banks) or NCUA-insured (at credit unions) up to $250,000 per depositor.

APY (Annual Percentage Yield) is the effective annual rate of return after compounding is taken into account. APR (Annual Percentage Rate) is the nominal annual rate before compounding. For the same CD, APY will always be equal to or higher than APR. Most banks advertise CDs using APY because it reflects the actual return you earn. When comparing CD offers, always compare APYs — not APRs — to get a true apples-to-apples comparison.

Compounding frequency determines how often earned interest is added back to your principal so it can earn more interest. Daily compounding earns slightly more than monthly, which earns more than quarterly, which earns more than annual compounding. The difference is usually small — for example, a $10,000 CD at 5% APY for 1 year earns $500 regardless of compounding frequency (because the bank already accounts for compounding in the APY). The compounding frequency matters more when you enter an APR rather than an APY.

The standard compound interest formula is: A = P × (1 + r/n)^(n×t). Where A is the final amount, P is the principal, r is the annual rate (as a decimal), n is the number of compounding periods per year, and t is the term in years. For example: $10,000 at 5% APR, compounded monthly, for 1 year = $10,000 × (1 + 0.05/12)^(12×1) = $10,511.62. Interest earned = $511.62.

A CD ladder is a savings strategy where you split your money across multiple CDs with staggered maturity dates — for example, one 3-month, one 6-month, one 12-month, one 24-month, and one 36-month CD. As each CD matures, you reinvest it at the longest rung of the ladder. This approach gives you regular access to funds (liquidity), reduces reinvestment risk (you're not locked into one rate), and often captures higher rates on longer terms. Use the Compare mode in this calculator to model different CD terms side by side.

Yes. Interest earned on CDs is taxable as ordinary income in the year it is credited to your account, even if you don't withdraw it. Your bank will send you a Form 1099-INT at the end of the year showing the interest earned. CDs held inside a tax-advantaged account (like an IRA) defer or eliminate this tax. Consult a tax professional for advice specific to your situation.

Most CDs charge an early withdrawal penalty if you take money out before the maturity date. The penalty varies by bank and term but is typically 3 months of interest for short-term CDs (under 1 year) and 6–12 months of interest for longer-term CDs. Some banks offer 'no-penalty' CDs with slightly lower rates but no early withdrawal fee. If you think you may need the money before maturity, consider a no-penalty CD or a high-yield savings account instead.

CD rates change frequently based on the Federal Reserve's benchmark interest rate. Online banks and credit unions typically offer higher CD rates than traditional brick-and-mortar banks due to lower overhead costs. To find current rates, compare offers at your bank, credit union, or use a rate comparison site. Use this calculator to compare any rate offers you find — enter each CD's principal, rate, and term to see which one earns you the most interest.