How a CD earns interest
A certificate of deposit (CD) is a savings account that pays a fixed rate if you leave the money in for a set term, such as 6 months or 5 years. Banks quote the APY (annual percentage yield), which already includes compounding, so you can compare offers directly.
The calculator grows your deposit at the APY for the term you pick: balance = deposit × (1 + APY)years. A table shows what the same APY would earn over other terms.
Tips for using CDs
- Build a CD ladder – split your money across several terms, such as 1, 2 and 3 years, so part of it matures regularly.
- Check the early withdrawal penalty – it is often a few months of interest, and can be more on long terms.
- Consider no-penalty CDs – lower rates, but you can withdraw early for free.
- Watch the maturity date – many CDs renew automatically at the current rate unless you act during the grace period.
Frequently asked questions
Are CDs safe?
CDs at FDIC-insured banks, or NCUA-insured credit unions, are protected up to $250,000 per depositor, per institution, for each ownership category.
Is CD interest taxable?
Yes. CD interest is taxed as ordinary income in the year it is earned, even if you don't withdraw it. Your bank sends Form 1099-INT.
CD or high-yield savings account?
A CD locks in a rate, which helps when rates may fall. A high-yield savings account keeps your money available any time, which is better for an emergency fund.