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*Average monthly interest is total modeled interest divided by approximate months; actual crediting can differ by institution and day-count method.
APY vs. Interest Rate on a CD
APY (Annual Percentage Yield) is designed to show the annualized yield after taking compounding into account. That makes it useful for comparing deposit products. A nominal interest rate does not itself include the effect of compounding.
If you enter a nominal rate: projected value = deposit × (1 + rate ÷ compounding periods)compounding periods × years.
For short CDs, a quoted 5% APY does not mean a three-month CD earns 5% in three months. The quoted APY is annualized. Exact bank calculations can differ slightly because disclosures may use actual days in the term and institution-specific crediting rules.
Early Withdrawal and Taxes
CD early-withdrawal penalties vary. Banks and credit unions disclose whether a penalty applies, how it is calculated and the conditions under which it applies. If you use the optional penalty field above, the calculator treats the penalty as a specified number of months of simple interest for an estimate only.
CD interest is generally taxable interest for federal income-tax purposes. The optional tax field simply applies the entered marginal rate to modeled interest; it is not a tax-return calculation and does not determine when income must be recognized.
CD Calculator FAQ
If a 3-month CD has 5% APY, do I earn 5% in three months?
No. APY is an annualized yield. A three-month term earns only the return attributable to that shorter period, subject to the institution's actual calculation and day-count rules.
Why does my CD show both an interest rate and an APY?
The interest rate is the stated rate used to calculate interest. APY reflects the annualized yield including compounding. They describe the same deposit's earnings in different ways, not two separate payments.
Should I enter APY or the interest rate?
Use whichever figure your disclosure provides and select the matching calculator mode. If both are listed, APY is generally the easier figure for comparing deposit products because it already incorporates compounding.
Does compounding frequency matter when I enter APY?
You should not apply a separate compounding frequency to a quoted APY because APY already reflects compounding. Compounding frequency is relevant in this calculator when you enter a nominal annual interest rate.
Is CD interest taxable?
Generally, yes. The IRS treats interest from certificates of deposit as taxable interest, subject to the applicable tax rules and timing.
Methodology and consumer rules: CFPB Regulation DD Appendix A, APY calculation, CFPB APY definition, and IRS Publication 550, certificates of deposit and taxable interest.