Held to term, a CD earns maturity balance = deposit × (1 + APY)^years. Pull the money early and the bank keeps a set number of months of interest as a penalty, commonly 90 days of interest on a short CD and 180 on a longer one. If little interest has built up yet, that penalty can reach into your principal.
The APY conversion most CD calculators get wrong
Banks advertise APY, annual percentage yield: the return after a year including compounding. To project a balance month by month, though, you need the nominal rate, and the two are different numbers.
The relationship is APY = (1 + r/n)n − 1, so getting the nominal
rate back means inverting it: r = n · ((1+APY)1/n − 1). A
calculator that plugs the advertised APY straight in as the nominal rate compounds a
number that already includes compounding, and it overstates your return. The error is
small on a one-year CD and grows with the term.
One useful result: once a bank quotes APY, compounding frequency stops mattering. Daily and annual compounding at the same APY produce the same maturity balance, by definition. Frequency only changes the answer when you're comparing quoted interest rates.
The CD return that matters is after tax
CD interest is taxed as ordinary income at your marginal rate, not at the lower long-term capital gains rate that applies to stocks held over a year. At a 22% marginal rate, a 4.50% APY is really about 3.51% in your pocket. At 32%, it's 3.06%.
Multi-year CDs have a second catch: interest is taxable in the year it's credited, not the year you withdraw it. On a five-year CD you can owe tax every year on money you're contractually unable to touch, which means finding the cash somewhere else. That alone is a reason many people stick to terms of a year or less.
Early withdrawal is where CDs bite
The penalty is quoted as a number of months of interest, commonly three months on short terms and six to twelve on longer ones. The trap is how it's calculated: on the principal at the CD's stated rate, not on the interest you've actually accrued.
Close a 12-month CD after two months with a six-month penalty and you've earned roughly two months of interest while owing six. The bank takes the shortfall out of your principal, and you leave with less than you deposited. It's legal, it's disclosed, and it still surprises people all the time. The calculator shows a red warning at exactly the point where you cross that line.
When a CD is and is not the right choice
- Use one for money with a known date: a house down payment in 18 months, a tax bill next April. You get a guaranteed rate in exchange for locking up money you weren't going to touch anyway.
- Don't use one as an emergency fund. The whole point of an emergency fund is immediate access. A high-yield savings account usually pays close enough to a short CD to make the lockup pointless. The comparison panel above shows the actual gap.
- Don't use one for long-term growth. Over a decade, a CD reliably loses to inflation-adjusted equity returns. Its job is to protect capital until a known date.
- Watch for auto-renewal. Most CDs roll over automatically at whatever rate is current on the maturity date, and you typically get a grace window of only seven to ten days to opt out. Put the maturity date on your calendar.
Privacy
All the arithmetic runs in your browser. Nothing you type is uploaded, and there is no account or limit.
Frequently asked questions
What is the difference between APY and interest rate?
The interest rate is the nominal rate before compounding. APY is what you actually earn over a year once compounding is counted, so it is always equal to or higher than the rate. Banks advertise APY because it's the bigger number, and because it's the one that lets you compare two CDs with different compounding schedules honestly.
Does compounding frequency change the result much?
Much less than people expect, because APY already accounts for it. At a fixed 4.50% APY, daily and annual compounding produce the same maturity balance by definition. Frequency only matters when you're comparing a quoted interest rate instead of a quoted APY.
How is CD interest taxed?
As ordinary income at your marginal rate, not at the lower capital-gains rate. It's also taxed in the year it's credited, even on a multi-year CD you haven't cashed out, so you can owe tax on money you can't touch yet. Enter your marginal rate above to see the after-tax figure. That's the only number worth comparing against other investments.
How does the early withdrawal penalty work?
It's quoted in months of interest, calculated on the principal at the CD's rate, not on the interest you've actually accrued. That difference matters. If you withdraw before you've earned as much as the penalty costs, the bank takes the rest out of your principal and you get back less than you deposited. The calculator flags exactly when that happens.
Is my data sent anywhere?
No. Every figure here is arithmetic done in your browser. Nothing you type is transmitted or stored.