How CD interest actually works
APY, compounding and crediting — the three factors that decide what a certificate really pays.
APY is the one figure that lets you compare
A CD advertised at 4.50% compounded monthly is not identical to one advertised at 4.50% APY. Annual percentage yield rolls compounding into a single number, and that is precisely why Truth in Savings rules require it in advertising.
Whenever two offers are quoted on different terms, put both into APY before you choose. The difference is normally minor — around a tenth of a point — yet on a six-figure deposit it amounts to real money.
Compounding frequency matters less than you would guess
Compounding daily sounds noticeably better than compounding monthly. Over a year on $25,000 at 4.50%, it comes to $2.13 more. Go after the rate first and use frequency only to break a tie.
The point at which interest is credited
Interest is usually credited monthly or quarterly, and the bank reports it on a 1099-INT for the year of crediting — even when the CD runs several years and you cannot reach the money. That is why some savers keep their longer certificates inside an IRA.
The assumptions behind the calculator
Our CD interest calculator applies the APY to your deposit across the term in years and keeps the interest inside the certificate. Where your bank pays the interest out instead, switch to the monthly payout tool, which does not compound anything you withdraw.