Certificate of Deposit (CD) Calculator
A Certificate of Deposit (CD) is a special type of deposit offered by banks, credit unions, and thrift institutions in which the holder invests a fixed amount of money (usually at least $100) for a specified timeframe. The interest rates offered by CDs are typically higher than regular savings accounts and payments are made to the holder of the CD at regular time intervals. CDs tend to be a good choice for conservative investors because their safety is guaranteed by the federal government. On the downside, most CDs carry financial penalties for early withdrawal.
Bank v. Brokerage CDs
Most individual investors purchase certificates of deposit directly from banks, but many brokerage firms also offer CDs, often at a higher rate of interest. These “brokerage CDs” can open up investment choices to a wide variety of banks and may give the holder the opportunity to buy and sell these instruments on a secondary market, just like many other fixed-income securities. While brokerage CDs can provide this additional liquidity and a potentially higher return, they usually require a higher minimum deposit.
Calculator assumes daily compounding
Choosing the Right CD for You
Before purchase any CD, you need to understand all of the terms associated with it. The best choice for you may not be the CD that offers the highest return.
Maturity: The first decision to make is how soon you will need the money. Most CDs penalize the holder for early withdrawal.
Risk: The primary risk concern for CD holders is inflation; the possibility that the returns from the CD will be eroded by rising inflation. Some brokerage CDs are “inflation-linked” in that their returns are adjusted based on changing rates of inflation. The financial institution you purchase the CD from will provide you with a disclosure that documents whether your CD offers a fixed or a variable rate of return.
Penalties: For the most part, CD holders need to be willing to live without the principal investment for the entire term of the CD as there are usually penalties for early withdrawal. You need to find out exactly what the cash penalty will be if you decide to cash in early.
Find Current CD Rates
_______________________________________________________________
The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
Recent Posts
- How to Calculate a Stock Market Profit
- Three Basic Financial Concepts for Investors
- Understand an Calculate the Capital Asset Pricing Model (CAPM)
- Calculate Your Retirement Savings Requirements
- The Basics of Stock Market Futures Trading
- How to Calculate Internal Rate of Return (IRR)
- How to Calculate Earnings per Share
- What the Par Value of a Stock Means
- Bond Value Calculator
- Some Basic Forex Trading Tips
Leave a Comment
You must be logged in to post a comment.