How these numbers are worked out.
The arithmetic behind the CD calculator and the savings calculator, stated plainly. No rates quoted, no products named, no recommendations made.
What is a CD?
A certificate of deposit is a savings deposit you agree to leave untouched for a fixed term in exchange for a fixed interest rate. At the end of the term, called maturity, you receive your deposit plus the compounded interest. Withdrawing early usually triggers a penalty, so the calculator assumes the deposit is held to maturity.
What formula does the CD calculator use?
The compound interest formula A = P(1 + r/n) raised to nt, where P is your deposit, r is the annual rate as a decimal, n is how many times per year interest compounds, and t is the term in years. Worked through: $10,000 at 5% compounded monthly for 12 months gives 10,000 x (1 + 0.05/12) to the 12th, which is $10,511.62.
Should I enter APY or APR?
Enter the nominal annual rate, sometimes labeled APR. APY is what you actually earn once compounding is counted, and the calculator derives it for you. A 5% nominal rate compounded monthly produces an APY of about 5.12%, because each month of interest begins earning interest itself.
What does compounded daily mean?
Interest is calculated and credited every day, using the annual rate divided by 365. Each day of interest then earns its own interest from the next day on. At the same nominal rate, daily compounding yields a slightly higher APY than monthly, which yields slightly more than quarterly, and so on down to annual.
How does the savings calculator handle monthly deposits?
Each month the balance earns one month of interest, the annual rate divided by 12, then the deposit lands at the end of the month. Total contributed counts the starting balance plus every deposit, and anything above that line is interest.