How CD interest is calculated
A CD locks your money for a set term at a fixed rate. Because the APY already includes compounding, the value at maturity follows directly from it.
Example: $10,000 in a 12-month CD at 4.25% APY is worth $10,425.00 at maturity. In an 18-month CD at the same APY, it grows to $10,644.23. In the 22% tax bracket, the 12-month CD's $425 of interest is $331.50 after federal tax.
CD tips
- Interest is taxable each year it's credited, even before the CD matures, unless the CD is in an IRA.
- Early withdrawal penalties are usually 3 to 12 months of interest; on short CDs they can eat into your deposit. No-penalty CDs pay a bit less.
- A CD ladder splits money across terms, for example 1 to 5 years, so part matures every year while most earns longer-term rates.
- FDIC or NCUA insurance covers up to $250,000 per depositor, per bank, per ownership category.
Compare with a savings account using the APY calculator.
Frequently asked questions
How much will $10,000 earn in a 1-year CD?
At 4.25% APY, $425. At 4% it's $400, and at 5% it's $500. Interest is taxed as ordinary income.
Can you lose money in a CD?
Not at an FDIC- or NCUA-insured bank, up to the insurance limit, unless an early withdrawal penalty is larger than the interest you've earned. Inflation can still outpace the rate.
What happens when a CD matures?
Most banks give a grace period of 7 to 10 days to withdraw or move the money. If you do nothing, it usually renews automatically at the current rate for the same term.
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