How to Use a CD Calculator to Plan Your Savings?
You may have heard about the ‘Certificate of Deposition.’ ‘CD,’ the term’s acronym, is mostly used to denote it. Those who want to keep their additional earnings safe and earn a sound income from it should consider going for it. You can call it an investment tool that many financial institutions, such as renowned banks, offer to help people deposit their funds and earn premium interest.
People who want to earn premium interest must keep their funds deposited for a specified term. Doing so not only helps them save their money but also earn a higher return on deposited funds after the completion of the term. However, being a buyer, determining how much you will earn after the end of the specified term is always a good idea. A reliable CD calculator comes in handy in such a situation when you want to plan your savings by buying a certificate of deposition.
This article helps you learn the method to use it. So, let’s delve further!
What is a CD Calculator?
Before we start discussing the method of using a CD calculator to plan your savings, learning its definition and working is essential. So, the job of a CD calculator is to calculate the interest that will be earned by a buyer on a certificate of deposition and the ending balance after the specified term.
The factors required to calculate the interest that will be earned by a CD buyer over time may vary from one calculator to another. However, a few important factors that every calculator requires to help buyers plan their savings and estimate their earnings are discussed below.
- Initial Deposit: The first thing a CD interest calculator requires is the initial deposit. It is the amount a buyer will deposit after agreeing to invest in the form of a certificate of deposition with a financial institution.
- Span of the Specified Term: You can simply call it the time after which the CD matures and a buyer becomes eligible to withdraw the amount without any penalty. This time can be calculated in months or years.
- Interest Rate: This is the specified interest rate during the CD agreement. This figure specifies the monthly or yearly premium interest the buyer earns because of the CD. It is measured in terms of percentage.
An advanced CD interest calculator may also ask for other factors before estimating the earnings of a buyer on such an investment. However, we will discuss those factors in the coming section.
How Do You Use a CD Calculator?
Gone are the days when you had to be a mathematical genius or an accounting pro to estimate the premium interest one can earn on an investment in a certificate of disposition. This task has become as easy as other everyday tasks, thanks to the involvement of the internet and advanced technology in our everyday lives.
An average Joe, who is unaware of the nitty-gritty of accounting and finance, can also determine it, thanks to a reliable CD rate calculator available online. The idea of using such a tool is all you need to plan your savings and estimate the resultant earnings on your investment. Here are the methods of using a CD calculator and the consequent benefits. Further details are given below.
Method to Use a CD Rate Calculator
Using a CD calculator is pretty simple and straightforward. Here is how you can use it.
- Input the initial amount, also termed principal, you will deposit for investment.
- Enter the CD term, which will be your deposit’s lifetime until it becomes mature.
- Now, add the annual percentage yield (APY) promised by the financial institution.
- You may also need to add the frequency of interest compounding on your CD.
- An advanced CD interest calculator may also ask you to add the percentage of marginal tax you will be paying for earnings on your CD to display accurate results.
- After entering all the aforementioned details, tap the calculate button, and you will see the results.
- Displayed results will feature the total interest earned on the CD and its maturity value after the completion of the specified term.
Benefits of Using a CD Calculator
Now that you know the method to use a CD interest calculator, it is time to understand the benefits of using such a handy tool. This section briefly outlines them, so read on to learn more.
- Helps you compare various scenarios so that you can choose the best option.
- Assists you in getting the best possible returns on your investments.
- Determines your earnings on CD instantly.
- Enables you to figure out how much principal you need to reach a particular savings goal.
- Takes the guesswork out of the savings process and delivers accurate results without any need to deal with complicated mathematics.
The Wrap
Living in the modern digital era helps us avoid plenty of hassles. Bypassing complicated mathematics required to estimate returns on various kinds of investment is no different, as various online tools are available to help us perform complicated calculations rather easily. For instance, a CD rate calculator helps buyers easily calculate their premium interests and maturity value of a certificate of deposit after completion. This article has discussed everything you must know about this online tool and its ability to help you throw the guesswork out of the investment process. Hopefully, you will find it beneficial!