If a certificate of deposit is on your investment agenda then it’s good to learn about returns you can gain by utilizing a CD calculator. Found on numerous banking and investment websites, these calculators allow you to pre-determine just how much money you can make based on the amount you invest in a certificate of deposit.
What is a Certificate of Deposit?
A certificate of deposit (CD) is an investment instrument issued by a bank or other financial institution in exchange for money paid by an investor. Unlike stocks that involve the risk of loss due to fluctuating prices in shares, CDs only have an interest rate with a predetermined amount of maturation time. In other words, your investment can only grow; however, the amount of growth won’t be nearly as much as if playing the stock market. This is because essentially the bank is paying you interest for allowing them to borrow your money and there’s no risk involved in this type of investment.
Why Use a CD Calculator?
So now that you know that a certificate of deposit merits a lower return than other forms of investment, you may be second-guessing your decision to invest in this way. But before you do, it’s a good idea to calculate just what your return would be over the specified amount of time you’d like your investment to grow. You can get this done by using a CD calculator.
These online calculators allow you to plug in a few details then determine in seconds how much money you can make from your investment. For example, if you use a CD calculator on one of the many sites out there, you can enter the following information:
- Initial deposit amount. The amount you plan to invest.
- Months. Represents the number of months for your CD to mature.
- Interest rate. The published rate of interest for your CD.
- Compounding. How often interest is being earned and added to your account (daily, monthly, quarterly, semi-quarterly, annually).
Once your details have been entered, you press calculate and let the CD calculator tell you how much you can earn. By taking this route, you can quickly determine whether the certificate of deposit is the right investment tool for you.