How a CD earns interest
A certificate of deposit locks a fixed rate for a fixed term — three months to five years is typical — in exchange for agreeing not to touch the money until maturity. Interest compounds at the bank's schedule (daily is most common) and the bank advertises the result as APY, the annual percentage yield. Value at maturity = deposit × (1 + APY)^(term in years), so a $10,000 12-month CD at 4.5% APY matures at $10,450.
CDs at US banks are insured by the FDIC (and at credit unions by the NCUA) up to $250,000 per depositor per institution, which makes them one of the few places to lock a guaranteed return. The table shows $10,000 across common terms at rates typical of 2025; note that in this period shorter CDs paid more than longer ones, the reverse of the usual pattern.
| Term | APY | Interest | Value at maturity |
|---|---|---|---|
| 3 months | 4.0% | $98.53 | $10,098.53 |
| 6 months | 4.3% | $212.74 | $10,212.74 |
| 12 months | 4.5% | $450.00 | $10,450.00 |
| 18 months | 4.2% | $636.57 | $10,636.57 |
| 24 months | 4.0% | $816.00 | $10,816.00 |
| 36 months | 3.8% | $1,183.87 | $11,183.87 |
| 60 months | 3.6% | $1,934.35 | $11,934.35 |
APY versus interest rate
Some banks quote an interest rate plus a compounding frequency rather than the APY. The two are related by APY = (1 + rate ÷ m)^m − 1, where m is the number of compounding periods a year. The calculator accepts either; choose the one on your quote. The difference is small but real: 4.5% compounded daily is 4.60% APY.
| Rate | Daily compounding | Monthly | Quarterly |
|---|---|---|---|
| 3% | 3.045% | 3.042% | 3.034% |
| 4% | 4.081% | 4.074% | 4.060% |
| 4.5% | 4.602% | 4.594% | 4.577% |
| 5% | 5.127% | 5.116% | 5.095% |
| 5.5% | 5.654% | 5.641% | 5.614% |
Early withdrawal penalties
Taking money out before maturity costs a penalty stated as a number of months' simple interest — commonly 3 months for terms up to a year, 6 months for one to three years, and 12 months or more for longer CDs. The penalty is charged on the amount withdrawn regardless of how long the CD has run, so withdrawing early in the term can cost more interest than has been earned and reduce the principal. The table follows a $10,000 12-month CD at 4.5% APY with a 3-month penalty.
| Withdrawn in | Interest earned | Penalty | You receive | Outcome |
|---|---|---|---|---|
| Month 2 | $73.63 | $110.00 | $9,963.63 | Principal lost |
| Month 4 | $147.80 | $110.00 | $10,037.80 | Interest reduced |
| Month 6 | $222.52 | $110.00 | $10,112.52 | Interest reduced |
| Month 9 | $335.64 | $110.00 | $10,225.64 | Interest reduced |
| Month 11 | $411.74 | $110.00 | $10,301.74 | Interest reduced |
Building a CD ladder
A ladder splits a lump sum across CDs of staggered terms — one to five years, say — so a rung matures every year. Each maturing rung is reinvested at the longest term. After the ladder is built you hold only long-term CDs (which usually pay most) yet have money coming available every year, and you are never fully locked into one rate. The table splits $25,000 into five rungs.
| Rung | Term | Deposit | APY | Value at maturity |
|---|---|---|---|---|
| Rung 1 | 1 year | $5,000 | 4.5% | $5,225.00 |
| Rung 2 | 2 years | $5,000 | 4.0% | $5,408.00 |
| Rung 3 | 3 years | $5,000 | 3.8% | $5,591.93 |
| Rung 4 | 4 years | $5,000 | 3.7% | $5,782.09 |
| Rung 5 | 5 years | $5,000 | 3.6% | $5,967.18 |
Choosing a term
Match the term to when you need the money, not to the highest rate. If rates are expected to fall, a longer CD locks today's rate; if they are expected to rise, a shorter one lets you reinvest higher, and a ladder hedges either way. Compare the CD's APY with a high-yield savings account: if the gap is small, the savings account's flexibility usually wins. No-penalty CDs and bump-up CDs trade a slightly lower rate for an exit or a rate reset.
- Interest is taxable in the year it is credited, even if you leave it in the CD.
- Brokered CDs (bought through a brokerage) can be sold before maturity instead of being redeemed, at a market price that may be above or below par.
- Most CDs renew automatically at maturity unless you act within a grace period, typically 7–10 days.
Assumptions
The calculator compounds at the APY continuously through the term, which matches how banks compute value at any date. Penalties use simple interest at the nominal rate on the full deposit, the most common convention; some banks charge on the amount withdrawn or use a flat percentage — check the disclosure. Taxes are not deducted.