How a CD grows
A certificate of deposit locks in a fixed rate for a set term. Unlike a regular savings account, the rate will not change while the CD is open, which makes the ending balance easy to project. The deposit earns interest, and that interest is added back into the balance at the compounding frequency you choose.
Each time interest compounds, the next round of interest is calculated on a slightly larger balance. This snowball is what separates the annual percentage yield (APY) from the plain stated rate: compounding monthly or daily squeezes a little more return out of the same headline rate than compounding once a year does.
Reading your results
The ending balance is what the CD is worth at maturity — your original deposit plus everything it earned. Interest earned strips out the deposit so you can see the growth on its own, and the APY tells you the true effective yearly return after compounding.
The donut chart splits the ending balance into the principal you put in versus the interest the CD earned, and the balance chart traces the deposit climbing year by year across the term.
Practical tips
A few things to weigh before committing to a term:
- Compare APY, not the stated rate, when shopping across banks — it already accounts for compounding.
- Longer terms usually pay more, but they also tie up your money for longer, so match the term to when you will need the cash.
- Consider a CD ladder — several CDs maturing at staggered dates — to keep some money accessible while still capturing longer-term rates.
- Confirm the deposit is within federal insurance limits at an FDIC- or NCUA-insured institution.
Caveats and common mistakes
Withdrawing before maturity usually triggers an early-withdrawal penalty that can erase months of interest, so only deposit money you can leave untouched. This estimate also ignores taxes — CD interest is generally taxable in the year it is earned, which trims your real take-home return.
This is an educational estimate, not financial advice. Verify the exact rate, term, compounding method, and penalty schedule with the issuing institution before you commit.
Formula
amount = P·(1 + (rate/100)/m)^(m·years); APY = ((1 + (rate/100)/m)^m − 1)·100Frequently asked questions
- What is the difference between the rate and the APY?
- The rate is the stated annual interest rate. The APY is the effective yearly return once compounding is included, so it is always equal to or higher than the rate.