CD Calculator

What this calculator does

A certificate of deposit is one of the simplest ways to grow money: you lock in a fixed amount at a fixed rate for a fixed term, and the interest compounds along the way. Working out the growth is easy enough. What trips people up is that the taxman takes a cut every year, so the number that lands in your pocket is smaller than the raw growth suggests. This calculator handles both halves. It grows your deposit, and then it shows you what is left after tax.

That after-tax figure is the one that actually matters, because it is the money you get to keep.

What a CD is

A certificate of deposit is a deposit you agree to leave with a bank or credit union for a set period, in exchange for a fixed interest rate. You commit the money for the term, and in return you usually get a better rate than an ordinary savings account, with none of the ups and downs of the stock market.

The safety is a big part of the appeal. CDs at banks are insured up to 250,000 dollars per depositor by the FDIC, and those at credit unions are covered to the same limit by the NCUA. So within those limits, your money is about as protected as money gets. The trade you make for that safety and that fixed rate is access: your money is meant to stay put until the term ends.

The part most CD calculators skip: tax

Here is the detail that catches people out, and the reason this calculator asks for your tax rate. The interest a CD earns is taxable income, and the IRS wants its share every year, as the interest is credited, not at the end when the CD matures. So even if you never touch the money and just let it sit until the term is up, you generally still owe tax on that year's interest each year along the way.

The IRS treats CD interest as ordinary income, taxed at your normal income tax rate rather than any lower investment rate. That is why a CD's real return is always a little less than its headline rate suggests, and it is why this tool takes your marginal tax rate and subtracts the tax from each year's earnings, so what you see is the growth you actually keep.

A worked example: what you keep after tax

Say you put 10,000 into a CD at 4%, compounded monthly, for 5 years, and your marginal tax rate is 22%.

Left completely alone with no tax, that deposit would grow to about 12,210. But tax does not leave it alone. After the yearly tax is taken out, your CD ends at $11,693.19. Over the five years it earns $2,170.75 in interest, of which $477.56 goes to tax, leaving you $1,693.19 that is genuinely yours. That gap between the roughly 2,210 of untaxed growth and the 1,693 you actually keep is the tax bite, and it is exactly the thing a rate-only calculator hides. Seeing it up front means no surprise at tax time.

Reading the year-by-year table

The result is laid out one row per year, with five columns: the year, any deposit made that year, the interest earned, the tax on it, and the balance at the end of the year. Your deposit shows up in year one and then stays at zero, because a CD is a single upfront deposit, not something you keep adding to.

Read down the interest column and you will see it grow a little each year, because the balance it is earning on keeps getting bigger. Read down the tax column and it grows alongside, since more interest means more tax. The ending balance column is the running total of what you have, after that year's tax has been taken out, so the figure in the final row is your after-tax finish line.

How to use it

• Deposit Amount. The amount you are putting into the CD.
• Interest Rate. The CD's annual rate as a percentage.
• Compound Frequency. How often interest is added: annually, quarterly, monthly, or daily.
• Deposit Length. The term of the CD, in years.
• Marginal Tax Rate. The income tax rate that applies to your interest, so the tool can show your after-tax return. The tax is taken out each year in the calculation.

Press Calculate for the full table and your after-tax totals, and Reset to clear it. To compare against an ordinary savings balance, our savings calculator helps, and to see the pure compounding without tax, there is the compound interest calculator.

Questions people ask

Is CD interest taxable?

Yes. The IRS treats interest earned on a CD as taxable income, generally in the year it is credited, even if you do not withdraw it and the CD has not matured. It is taxed as ordinary income at your normal rate.

Are CDs safe?

They are among the safer places to keep money. CDs at banks are insured up to 250,000 dollars per depositor by the FDIC, and CDs at credit unions are insured to the same limit by the NCUA, so within those limits your deposit is protected.

What is my after-tax return?

It is the interest you earn minus the tax you owe on it. Because CD interest is taxed each year at your income tax rate, your real return is lower than the stated rate. This calculator subtracts the tax so you can see what you actually keep.

References

The description of a CD and its FDIC and NCUA deposit insurance follows the U.S. Consumer Financial Protection Bureau. The treatment of CD interest as taxable income, reportable in the year it is credited, follows the U.S. Internal Revenue Service.

1. Consumer Financial Protection Bureau. What is a certificate of deposit (CD)? consumerfinance.gov
2. Internal Revenue Service. Topic No. 403, Interest Received. https://www.irs.gov/taxtopics/tc403