How CD interest is calculated
If you know the interest rate (APR) and how often it compounds, the value at maturity is FV = P × (1 + r/n)n·t: the deposit P, the rate r as a decimal, n compounding periods a year (365, 12, 4 or 1) and t years. If you know the APY, compounding is already built in, so the value is simply FV = P × (1 + APY)t.
Here is $10,000 at an example rate of 4.00% APR for 12 months with each compounding frequency:
| Compounding | Value at maturity |
|---|---|
| Daily | $10,408.08 |
| Monthly | $10,407.42 |
| Quarterly | $10,406.04 |
| Annually | $10,400.00 |
The same $10,000 at an example 4.00% APY for 12 months is $10,400.00 whatever the compounding. That is why the APY is the number to compare between accounts. Every formula is on the methodology page.
APY or interest rate: which number to enter
Account disclosures usually show both an interest rate and an APY. The APY already includes the effect of compounding, so if you enter it you do not need to know the compounding frequency. If you only have the interest rate, switch the rate field to “Interest rate (APR)” and choose the compounding the account uses. To convert one to the other, use the APY calculator.
Short CDs and long CDs
The term sets t, the number of years. A 6-month CD has t = 6 ÷ 12 = 0.5, so $10,000 at an example 4.00% APY earns $198.04. A 60-month CD has t = 5, so $5,000 at an example 4.00% APY grows to $6,083.26, which is $1,083.26 of interest.
If your CD term is given in days, switch the term unit to days. The calculator then uses t = days ÷ 365, so a 182-day CD of $10,000 at an example 4.00% APY earns $197.49.
What this calculator does not include
The results leave out taxes on interest, account fees, and any change of rate when a CD renews. They also assume you keep the money in until maturity. To see what cashing out early could cost, use the CD early withdrawal penalty calculator.