Explain it like I’m 5
A CD is a deal with a bank. You say: “I’ll let you keep my money for one year.” The bank says: “Okay — and I’ll pay you a set amount extra for waiting.” At the end, you get your money back plus the extra (the interest).
The catch: if you want your money back early, the bank keeps some of the interest as a fee. The good part: the interest rate is locked in, so it can’t go down while you wait, and your money is protected by the government up to $250,000.
This calculator shows exactly how much extra money your CD will earn by the end.
Words you’ll see, in plain English
- CD (certificate of deposit)
- A deal with a bank: you promise to leave your money there for a set time, and the bank promises you a fixed interest rate.
- APY (annual percentage yield)
- How much your money really grows in one year, with compounding included. 4% APY on $100 means about $104 after a year.
- APR / interest rate
- The basic yearly rate before compounding is counted. APY is usually a little higher than the APR.
- Compound interest
- Interest that earns its own interest. Like a snowball rolling downhill: the bigger it gets, the faster it grows.
- Maturity
- The day an investment “finishes” and you get your money back — like the end date on a CD or a bond.
- Early withdrawal penalty
- A fee for taking your money out before you promised to.
- FDIC insurance
- A US government promise that if an insured bank fails, you get your deposits back — up to $250,000 per person, per bank, per account type.
More money words explained simply in our glossary.
How to use the CD calculator
- Enter how much you plan to deposit.
- Enter the rate. If you copied it from a bank’s rate table it is almost always an APY — leave the rate type on APY.
- Enter the term in months or years (common terms are 3, 6, 9, 12, 18, 24, 36 and 60 months).
- Optionally add your tax rate to see what you keep after income tax.
CD interest formula
With an APY, the maturity value of a CD is:
Maturity value = deposit × (1 + APY)term in years
With a nominal interest rate compounded n times a year, first convert it to APY:
APY = (1 + rate ÷ n)n − 1
For example, $10,000 in a 12-month CD at 4.50% APY grows to $10,000 × 1.045 = $10,450, earning $450. At 18 months it would grow to $10,000 × 1.0451.5 ≈ $10,683.
CD interest on common deposits
One year of interest at a few typical APYs:
| Deposit | 3.50% APY | 4.00% APY | 4.50% APY | 5.00% APY |
|---|---|---|---|---|
| $5,000 | $175 | $200 | $225 | $250 |
| $10,000 | $350 | $400 | $450 | $500 |
| $25,000 | $875 | $1,000 | $1,125 | $1,250 |
| $50,000 | $1,750 | $2,000 | $2,250 | $2,500 |
| $100,000 | $3,500 | $4,000 | $4,500 | $5,000 |
Choosing a CD term
- Match the term to when you need the money. Early withdrawal penalties can wipe out months of interest.
- Compare against high-yield savings. If a savings account pays about the same, its flexibility may be worth more than locking in.
- Consider a CD ladder. Splitting money across several terms (say 6, 12, 18 and 24 months) gives you regular access to cash while still capturing longer-term rates.
- Watch for automatic renewal. Many CDs roll into a new CD at the then-current rate if you don’t act during the grace period at maturity.
Learn more
- What Is a CD? How Certificate of Deposit Accounts Work — A CD is a bank deposit that pays a fixed interest rate in exchange for leaving your money untouched for a set term. Here’s how they work, what they cost you if you break them, and when they make sense.
- What Is a High-Yield Savings Account? — A high-yield savings account is an ordinary, insured savings account that pays a much higher interest rate than a typical bank savings account. Here’s how it works and when it’s the right home for your cash.
Frequently asked questions
How much will a $10,000 CD earn in a year?
At a 4.00% APY, a $10,000 CD earns $400 in one year; at 4.50% APY it earns $450; at 5.00% APY it earns $500. Because APY already includes compounding, you can multiply the deposit by the APY to get one year of interest.
What is the difference between APY and APR (interest rate)?
The interest rate (APR) is the stated annual rate before compounding. APY (annual percentage yield) includes the effect of compounding, so it shows what you actually earn in a year. Banks are required to disclose APY on CDs in the US, which makes APY the best number to compare offers. Choose “APY” in the calculator if you are copying the rate from a bank’s website.
Does compounding frequency matter?
Only if you enter an interest rate (APR). More frequent compounding turns the same APR into a slightly higher APY — for example 5.00% compounded daily is about 5.13% APY. If you enter an APY, compounding is already included, so changing the frequency does not change the result.
Is CD interest taxable?
In the US, CD interest in a regular account is taxed as ordinary income, generally in the year it is credited to your account — even if you do not withdraw it until the CD matures. Your bank reports it on Form 1099-INT. CDs held inside an IRA are not taxed each year.
What happens if I withdraw early?
Most CDs charge an early withdrawal penalty, commonly a number of months of interest (for example 3 months on a 1-year CD or 6–12 months on longer terms). The penalty can eat into your principal if you withdraw very early. No-penalty CDs exist but usually pay a lower rate.
Are CDs safe?
CDs at FDIC-insured banks (or NCUA-insured credit unions) are insured up to $250,000 per depositor, per insured institution, per ownership category. Above that limit, consider spreading money across institutions or ownership categories.
These results are estimates for education only, based on the assumptions you enter. They are not financial, investment or tax advice. Real returns, rates and taxes vary. See our methodology anddisclaimer.