Frequently asked questions
What is the difference between APY and interest rate on a CD?
APY (Annual Percentage Yield) includes the effect of compounding, so it represents your true annual earnings. The nominal interest rate is the base rate before compounding. Banks are required to disclose APY, and it's the number you should compare across CDs. This calculator takes APY as input and accounts for compounding internally.
Does compounding frequency matter if I already have the APY?
When comparing CDs, APY already accounts for compounding so you can compare directly. However, the compounding frequency affects when interest is credited to your balance. With monthly compounding, interest shows in your account sooner (relevant if you break the CD early).
What happens if I withdraw early?
Most CDs charge an early withdrawal penalty, typically 3–6 months of interest depending on the term length. This calculator shows the full-term maturity value. Your actual payout on early withdrawal would be less. Some banks offer no-penalty CDs with slightly lower rates.
Are CD returns taxable?
Yes. Interest earned on CDs is taxable as ordinary income in most jurisdictions, even if you don't withdraw the funds until maturity. Your bank will report it annually. Consider holding CDs in a tax-advantaged account if available.
Should I choose a longer-term CD for a higher rate?
Longer terms typically offer higher APY, but lock your money for the duration. Consider the rate environment: if rates are expected to rise, shorter CDs let you reinvest sooner at higher rates. A CD ladder (splitting deposits across multiple terms) balances rate and liquidity.
How does a CD compare to a high-yield savings account?
CDs lock in a guaranteed rate for the term, while savings account rates can change at any time. CDs typically offer slightly higher rates in exchange for locking up your funds. Choose a CD when you want a guaranteed return and don't need access. Choose a savings account for funds you might need.