1. What is Add-On Interest for CDs?

Add-On Interest for Certificates of Deposit (CDs) is a method of calculating interest where the interest is calculated on the principal amount and added to the initial investment to determine the total maturity value.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( Principal \) — Initial investment amount ($)
• \( Rate \) — Annual interest rate (decimal)
• \( Time \) — Time period in years

Explanation: The formula calculates the total interest earned over the specified time period, which is then added to the principal to determine the final maturity value of the CD.

3. Importance of CD Interest Calculation

Details: Accurate interest calculation helps investors understand their potential returns, compare different CD offerings, and make informed investment decisions for their financial goals.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between simple interest and compound interest for CDs?
A: Simple interest calculates earnings only on the principal, while compound interest calculates earnings on both principal and accumulated interest.

Q2: Are CD interest rates fixed or variable?
A: Most CDs offer fixed interest rates for the entire term, though some specialty CDs may have variable rates.

Q3: What happens if I withdraw from a CD early?
A: Early withdrawal typically results in penalties, which may include loss of some or all interest earned.

Q4: How is CD interest taxed?
A: CD interest is considered taxable income and must be reported on your annual tax return.

Q5: What are typical CD terms available?
A: CDs typically range from 3 months to 5 years, with longer terms generally offering higher interest rates.