| Certificate of Deposit rate calculators are useful in | | | | that particular frequency that the CD's interest is |
| determining the amount of interest an investor will earn | | | | added to his account balance. A higher frequency |
| on a CD. If an investor enters information about the | | | | allows the investor to get additional compounded |
| initial deposit amount, the number of months for the CD | | | | interest on the accumulated interest sooner. |
| to mature, interest rate offered by the institution etc, he | | | | If an investor wishes to maximize yields on CDs while |
| she can calculate the amount of rate of return that | | | | maintaining liquidity simultaneously, a CD laddering |
| can be earned on CD. | | | | calculator is useful. The working of CD laddering can |
| The calculator gives results relating to the detailed | | | | be explained with the help of the following example. |
| schedule of the Annual Percentage Yield (APY) and | | | | Suppose Mr. A has $50,000 in cash reserves. If he |
| the ending balance of the CD on the date of maturity | | | | buys a $10,000 one-year CD, a $10,000 two-year CD |
| date. Annual Percentage Yield is the effective annual | | | | and so on until his last investment is in the 5-year CD |
| rate of interest earned for the CD without considering | | | | of $10,000 so that each year is a rung on the ladder, |
| the frequency of compounding the interest amounts | | | | then whenever the one-year CD matures he reinvests |
| along with the starting balance of the CD. Sometimes | | | | that money in a five-year CD. By that time, his |
| investors have the option of reinvesting the interest | | | | five-year CD has four years left until it matures. As |
| amount to the opening balance of the CD in which | | | | each year's CD comes due, he will roll it into a |
| case they will get a higher compound rate of interest. | | | | five-year CD. By implementing CD laddering, his total |
| The APY measures the actual rate of interest that an | | | | interest income will be much higher. CD laddering |
| investor can earn annually. The APY is also useful for | | | | calculators are very much useful for the determination |
| comparing the interest rates of different CDs and their | | | | of these maximum yields if the investor enters a few |
| compounding frequencies. Compounding is the process | | | | details about his investment amount. |
| of reinvesting the interest amount so that investor will | | | | Using a CD rate calculator is a great way to keep |
| get interest on that particular CD's accumulated | | | | track of interest earned from CDs. A CD laddering |
| interest. | | | | calculator is used to keep track of complex |
| A CD rate calculator also allows an investor to choose | | | | investments made over time. |