CD Calculator | After-Tax and Inflation Adjusted

What is a CD Calculator?

A certificate of deposit or CD, is an investment offered by a bank or other financial institution. A CD is a fixed rate investment. It will pay a fixed amount of interest while the money is held in the CD. Generally speaking, the CD will have a set number of months that it must remain in the bank. If the CD is removed before this time period, the CD owner may be required to pay early withdrawal penalties. CD’s are also taxable unless the CD is held in a tax advantaged account such as an IRA.

This CD Calculator or certificate of deposit calculator does several things. First, by entering the initial contribution, deposit length, and interest rate, it will calculate the account balance over time. If the CD is in a taxable account, don’t forget to enter a tax rate in the marginal tax rate field. Next, the user can choose the rate of compounding to calculate which compounding method will yield more interest, all else being equal. 

Last, the user can enter an inflation rate that lets the user know how their CD may keep up with inflation. If inflation is greater than your rate of interest, the CD’s inflation adjusted balance in the table will decrease in value.

Glossary of Terms

Initial Contribution – The initial contribution into your certificate of deposit.

Deposit Length – The length of time that your money will remain in the CD.
Initial Contribution – The initial contribution into your certificate of deposit.

Deposit Length – The length of time that your money will remain in the CD.

Interest Rate – The rate of interest one expects to earn in the CD account.

Compound – This is the frequency with which interest will compound inside the CD account. The more frequent the compounding, the more interest will accumulate with all else being equal.

Inflation Rate – The expected rate of future inflation. The inflation rate chosen will discount future account balances to calculate an inflation adjusted balance. This is found in the last column of the data table.

Marginal Tax Rate – The marginal tax rate or tax bracket that the user is in.

Final Account Value – The calculated final account value in the CD account.

Inflation Adjusted Value – The final balance in the account adjusted for inflation.

Total Interest – The total amount of interest earned on the certificate of deposit.

Total Principal – The total principal equals the initial contribution deposited into the account.

The Charts

Account Balance – The account balance chart maps the account value over time. This chart mirrors the “EOY Balance” column in the data table so the user can view their account balance visually.

Inflation Adjusted Balance – The inflation adjusted balance chart displays the account balance adjusted for inflation. A CD’s interest rate is sometimes near the inflation rate, which means inflation can decrease a CD’s real return. This chart will move in a downward direction from left to right when the inflation rate is higher than the interest rate.

Total Interest After Tax – This chart displays the cumulative interest earned after tax, while the CD is held. This chart mirrors the “Interest After Tax” column from the data table, cumulatively.

The Data Table

The data table in this CD rate calculator displays the CD account value on an annual basis. Each year begins with the BOY Balance which stands for Beginning Of Year Balance. The next column outlays the interest earned followed by the interest after tax is subtracted. This is based upon the marginal tax rate entered above. Then the Interest After Tax column is added to the BOY Balance to arrive at the EOY Balance column. Lastly, the Inflation Adjusted Balance uses the inflation rate entered above to adjust the CD’s balance for inflation. The inflation adjusted balance will always be less than the account balance if an inflation rate is entered.

Certificate of Deposit FAQs

Why Buy A Certificate of Deposit?

People generally buy a certificate of deposit for its conservative and ‘safe’ attributes. It often yields higher interest rates than a bank savings account and is still FDIC insured. That is why it is sometimes referred to a high yield savings account. A certificate of deposit, will usually attract people in or close to retirement due to its steady and predictable interest payments. Despite the gernal safety of CDs, it’s important to beware of the their risks as well. This CD interest calculator can help determine if a CD is right for you.

Are CDs FDIC Insured?

Yes, certificate of deposits are FDIC insured up to $250,000 per person, per bank. You can find more information at this helpful FDIC article.

How Does the Compounding Method Affect the Interest Rate?

This calculator does not calculate the annual percentage yield APY of the CD based on the compounding method. However, generally speaking, the more frequently the compounding method, the higher the actual interest rate of APY of the CD. For more information, visit our APY calculator.

How Does A Bank CD Compare To A Fixed Annuity?

Both a fixed annuity and bank CD will have comparable interest rates depending on who the provider is. The primary difference between a fixed annuity and bank CD is that a bank CD’s interest is taxable. On the other hand, a fixed annuity’s interest is tax deferred which can make a big difference in the long term. Bank CDs and money markets are also sometimes compared. But money market interest rates are not currently in the same ball park as Bank CDs.

What Is A CD Ladder?

A CD ladder is a popular strategy in personal finance circles. It is a strategy where different CD’s are purchased with different maturities. As one CD matures, the money is reinvested in a CD with a longer term maturity date. In other words, it is reinvested at the end of the CD ladder. 

This strategy is used to diversify against interest rate risk. Interest rate risk is the risk that a CD is purchased and then followed by a rise in interest rates. Consult with your financial advisor to determine if this is one of the products and services they offer.