CD Calculator
Frequently Asked Questions
What is a Certificate of Deposit (CD)?
A Certificate of Deposit (CD) is a time deposit account that typically offers:
- Higher interest rates than regular savings accounts
- Fixed terms ranging from months to years
- Guaranteed returns if held to maturity
- FDIC insurance up to $250,000
How does compound interest work?
Compound interest is interest earned on both:
- Your initial principal investment
- Previously accumulated interest
- More frequent compounding periods mean higher returns
- The effect increases significantly over longer terms
What is the Effective Annual Rate (EAR)?
The Effective Annual Rate (EAR) shows:
- The actual annual return including compound interest
- True rate of return for comparison between different CDs
- Impact of different compounding frequencies
- Real earning potential of your investment
What affects CD interest rates?
CD interest rates are influenced by several factors:
- Federal Reserve monetary policy
- Term length (longer terms typically offer higher rates)
- Deposit amount (larger deposits may earn higher rates)
- Individual bank policies and competition