How A Certificate Of Deposit Calculator Works

How A Certificate Of Deposit Calculator Works

CD's, also known as Certificates of Deposit calculators are a great tool for evaluating CD offers from banks. These calculators use a variety of factors to determine which offers are the best for you.

In this article, we will evaluate the factors used by the Certificate of Deposit calculator at FinanceNewsToday.com and what kind of results you can expect.

The certificate of deposit calculator uses four pieces of data from your CD offer; the amount of the initial deposit, the annual interest rate, the term of the CD, and how often interest is compounded.

The deposit amount is the initial amount you will be depositing into the CD. Many CD's have a minimum investment amount. Be sure to read the fine print and gather as much information on deposit minimums from the bank officer.

The annual interest rate, also referred to as APR, is the percentage of interest the CD will pay you over the period of one year. As a rule of thumb, the lower the CD term the lower the APR offered and the longer the CD term, the higher the APR you can expect to earn.

The CD maturity date is the number of months until the CD matures. Some CD's have short terms of as little as 6 months to as long as 60 months or longer. Be sure to review the information on maturity dates in the CD literature.

The compounding interval can vary between CD's. Some CD's have compounding intervals of daily, monthly, quarterly, semi-annually, and annually. This process is important as it determines the frequency in which interest is added to the principal balance in a manner that the interest itself starts earning interest.

Closing Comments

This free CD calculator uses this information to determine future value of your money, the interest earned on your money, and the annual percentage yield (APY) which can tell you which CD may be the better investment.

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