1. What is a CD Calculator?

A CD (Certificate of Deposit) Calculator helps you estimate the maturity value of your CD investment using compound interest. CDs are time deposits offered by banks with fixed interest rates and maturity dates.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( P \) — Principal amount ($)
• \( r \) — Annual interest rate (%)
• \( n \) — Number of compounding periods per year
• \( t \) — Time period in years

Explanation: The formula calculates how your initial investment grows over time with compound interest, where interest earned is reinvested to earn additional interest.

3. Importance of CD Investment

Details: CDs offer guaranteed returns with FDIC insurance, making them a safe investment option for conservative investors seeking predictable growth.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, select compounding frequency, and time period. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both principal and accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (e.g., daily vs. annually) results in higher returns due to interest being calculated and added more often.

Q3: Are CD investments risk-free?
A: CDs are low-risk and FDIC-insured up to $250,000 per depositor per institution, but they offer lower returns compared to stocks.

Q4: What happens if I withdraw early from a CD?
A: Early withdrawal typically results in penalties, which can reduce or eliminate your interest earnings.

Q5: Can I add more money to an existing CD?
A: Generally no, CDs are fixed-term investments. You would need to open a new CD with additional funds.