The article provides an overview of Certificates of Deposit (CDs), which are financial products offered by banks and credit unions. CDs allow individuals to deposit money for a fixed term in exchange for a guaranteed interest rate, typically higher than regular savings accounts. The interest rate on a CD is influenced by factors such as Federal Reserve policies and market competition. The article explains how to use a CD calculator by entering investment details like the initial deposit, interest rate, term length, and compounding frequency to calculate potential earnings. The calculator provides results including the final balance, total interest earned, and a growth chart.
Additionally, the article defines key CD terms such as initial deposit, term length, interest rate, annual percentage yield (APY), compounding, and early withdrawal penalty. It highlights the importance of understanding these terms to make informed investment decisions. The APY formula is provided to illustrate how the total interest earned over a year is calculated, considering the effects of compounding. Overall, the article serves as a guide for individuals looking to invest in CDs and understand how their investment can grow over time.
Key takeaways:
A Certificate of Deposit (CD) is a financial product that offers a fixed interest rate for a specified term.
CD rates are influenced by Federal Reserve policies and market competition.
To calculate potential earnings from a CD, input the initial deposit, interest rate, term length, and compounding frequency.
Compounding allows interest to be added to the account balance, which then earns additional interest.
