CD Calculator Guide
Certificates of deposit typically pay a higher rate than a regular savings account in exchange for one tradeoff: your money is locked up for a fixed term, and pulling it out early usually costs you a penalty. Laddering is the standard technique for getting the better rate without giving up all your flexibility.
How CD Laddering Works
Instead of putting all your money into one 5-year CD, you split it across several CDs with staggered terms — for example, 1-year, 2-year, 3-year, 4-year, and 5-year CDs opened at the same time. As each shorter CD matures, you either withdraw the cash if you need it or roll it into a new long-term CD to keep the ladder going. This gives you regular access points to your money (roughly once a year, in this example) while still capturing the higher rates that longer-term CDs typically offer. Run each rung of your ladder through the CD calculator individually to see how much each term actually earns.
The Early Withdrawal Penalty Changes the Math
Breaking a CD before its term ends typically costs a penalty, often calculated as a number of months' worth of interest — the exact terms vary by bank and CD length. If there's a real chance you'll need the money before maturity, that penalty can erase most or all of the rate advantage a CD has over a high-yield savings account, which offers similar rates in some periods with no lock-up at all. Only commit money to a CD that you're confident you won't need before it matures.
APY Already Accounts for Compounding
When comparing CD offers, use the Annual Percentage Yield (APY) rather than the stated interest rate — APY already factors in how often the CD compounds, so it's the accurate apples-to-apples number for comparing two CDs that might compound on different schedules. The calculator's inputs are built around APY for exactly this reason.