What Is a Certificate of Deposit?

A certificate of deposit (CD) is a time deposit offered by banks and credit unions. You agree to leave a lump sum untouched for a fixed term — from a few months to several years — and in exchange the institution pays a guaranteed interest rate, typically higher than a standard savings account. This CD calculator projects your maturity value using the compound interest formula.

CD Formula

Maturity Value = P × (1 + r/n)^(n×t), where P is the initial deposit, r is the annual interest rate, n is the number of compounding periods per year, and t is the term in years. APY = (1 + r/n)^n − 1 measures the true annual return after compounding.

CD Laddering Strategy

Instead of one large CD, many savers build a ladder: split funds across 6-month, 1-year, 2-year, and 5-year CDs so a portion matures at regular intervals. As each rung matures, reinvest at the then-current rate — capturing higher long-term rates while keeping liquidity.