Calculating Potential Interest Growth on a Certificate of Deposit (CD)
Investing in a certificate of deposit (CD) allows you to earn interest at a higher rate than a savings account but without the risks associated with stocks or other forms of investment. Using a certificate of deposit calculator allows you to determine whether this investment is the right choice for you and determine the potential interest growth and tax liability on your Certificate of Deposit.
What Is a CD?
A CD is a type of account into which you pay a set amount of money. You cannot remove your money before a specific date when the CD reaches “maturity.” On that date, you get to withdraw your investment and the set amount of interest you will be paid. CDs are a good choice if you want an investment with low risk but that you will not need to touch for some time. You can choose between an APR (annual percentage rate), simple interest, callable, liquid, compound interest and other styles of a CD.
How Much Will I Make?
When deciding on a CD, you will need to determine how much your CD will make you and whether this amount will meet your needs. Since CDs vary widely and each bank offers slightly different terms, you need to compare different options to find the right fit.
The growth potential on your CD will vary depending on the rate you are quoted and the type of certificate of deposit you choose:
- A simple interest CD will pay a specific interest rate per term. For example, if your CD promises to pay 6% per year and you invest $100, you will get $6 in interest at the end of the year.
- A compound interest certificate of deposit allows you to earn interest on the money you are earning. If you have a CD that pays 0.6% monthly, you will get $0.60 the first month on a $100 investment, but the month after that you will be earning 0.6% on 100.60, so you will gradually earn more.
- An APR CD will vary depending on whether the interest will be calculated every three months, four months or in other increments of time. You can use an online calculator to more accurately determine how much you can expect to make from your CD.
If you want to make more from a CD, consider a callable CD, which allows the issuer to recall the certificate of deposit and pay what is owed to each investor before the CD matures. To account for the higher risk, these CDs can carry higher interest rates.
You can also choose a Bump-Up CD, which will increase the interest rate if interests rates go up while you own the investment. Compare different options to find the one that’s right for you.
Use a Certificate of Deposit Calculator to Help
Be sure to check out Money Help Center’s other free calculators to make the best investment choices for your financial future!