A certificate of deposit (CD) is a bank deposit with a fixed rate and a fixed term. You agree to leave the money alone for, say, a year. In return the bank usually pays more than a savings account and guarantees the rate for the whole term. This calculator shows exactly what a CD will pay: the balance when it matures, the interest before and after tax, and what cashing out early would cost.
How CD interest is calculated
Banks advertise CDs by their annual percentage yield (APY), the rate you actually earn in a year once compounding is included. If you know the APY, the value at maturity is simply:
where
Some banks, and most loan-style quotes, give an interest rate or APR before compounding. To turn that into an APY, apply the compounding
Worked example: $10,000 for 12 months at 4% APY
These are the calculator’s default values.
Step 1 — balance at maturity.
So the CD earns $400 of interest.
Step 2 — after tax. CD interest is taxed as ordinary income. In the 22% federal bracket you keep:
That’s an after-tax yield of 3.12%, before any state income tax.
Step 3 — the same CD quoted as an interest rate. A 4% APY compounded monthly corresponds to an interest rate of:
Going the other way, a CD advertising a 4% interest rate compounded monthly pays a slightly better 4.074% APY.
Step 4 — breaking it early. With a penalty of 3 months’ interest, cashing out would cost about $98.21. Check your CD’s terms, because penalties vary widely.
Shop the rate, not just the account
According to the FDIC’s national averages for September 2026, a typical savings account pays 0.37% and a typical 12-month CD 1.73%. Competitive online banks and credit unions often pay more than twice that average. On $10,000 for a year that’s the difference between $173 and $400 of interest, for the same safety, since both are federally insured.
Longer isn’t always better, either. In the FDIC’s September 2026 averages, 12-month CDs (1.73%) paid more than 36-month (1.36%) and 60-month (1.38%) ones. When long-term rates are lower than short ones, locking money up for five years earns you less, not more.
How compounding affects the result
| 4% interest rate compounded… | APY | Interest on $10,000 in one year |
|---|---|---|
| Annually | 4.000% | $400.00 |
| Quarterly | 4.060% | $406.04 |
| Monthly | 4.074% | $407.42 |
| Daily | 4.081% | $408.08 |
The differences are small, and they only matter when banks quote interest rates. If two CDs both advertise a 4% APY, they earn exactly the same $400.
Building a CD ladder
A ladder spreads your money over CDs with staggered maturities. For example, you might put one-fifth each into 1-, 2-, 3-, 4- and 5-year CDs, then reinvest each one as it matures into a new 5-year CD. After the first few years, part of your savings matures every year. That gives you regular access to cash and a chance to catch higher rates, while the rest stays locked in at longer-term rates.
Common mistakes
- Comparing an interest rate with an APY. Always compare APY to APY.
- Forgetting the tax. Interest is taxed each year it’s credited, even inside a multi-year CD.
- Ignoring the penalty. Only put money in a CD that you won’t need before it matures.
- Letting it roll over automatically. Many CDs renew at the bank’s standard rate unless you act during the short grace period after maturity.
Estimates only. Rates, compounding and penalty rules vary by bank; your CD’s disclosure has the exact terms. Deposits are insured up to $250,000 per depositor, per insured bank, per ownership category.
Sources and assumptions
This calculator assumes:
- The rate is fixed for the whole term and interest is left in the account.
- The early-withdrawal penalty is estimated as months of interest on the full deposit; each bank sets its own rule.
- Taxes on interest are not deducted.
Sources:
- National rates and rate caps, Federal Deposit Insurance Corporation
- Deposit insurance, Federal Deposit Insurance Corporation
Figures last reviewed: . Educational estimates, not professional advice.