How does the calculator compare two CD rates fairly?
It runs the same deposit through the same compounding schedule for the same number of years twice: once at Rate A and once at Rate B. Because everything except the rate is held fixed, the extra-earnings result is a clean measure of what the rate difference alone is worth.
Each balance is the deposit times a growth factor, (1 + rate ÷ n) raised to the number of compounding periods. The higher rate's factor is larger, and since both factors multiply the same deposit, the dollar gap is the deposit times the difference between the two factors.
If one bank quotes only an APY, enter that APY with annual compounding. APY already includes compounding, so annual compounding converts it back into dollars without double counting.
Balance A = P × (1 + rA ÷ n)^(n × t) Balance B = P × (1 + rB ÷ n)^(n × t) Extra earnings = |Balance B − Balance A|
- P
- deposit, the same for both CDs
- rA, rB
- the two stated annual rates as decimals
- n
- compounding periods per year, the same for both
- t
- term in years
Example: 3.90% at your bank vs 4.35% elsewhere on $40,000
Scenario: Luis has $40,000 to place for three years. His current bank offers a 3.90% CD and another insured bank offers 4.35%, both compounded monthly.
- Rate A growth$40,000 × (1 + 0.039 ÷ 12)^36 = $44,956.25, so interest is $4,956.25
- Rate B growth$40,000 × (1 + 0.0435 ÷ 12)^36 = $45,565.16, so interest is $5,565.16
- Extra earnings$45,565.16 − $44,956.25 = $608.91
- Per year, roughly$608.91 ÷ 3 ≈ $203 a year for moving the money
The 4.35% CD would earn $608.91 more than the 3.90% CD over three years on the same $40,000.
Both figures are before tax and assume the CDs are held to maturity with interest left in the account.
When does comparing two CD rates pay off?
Deciding whether to move money to a new bank
Opening an account elsewhere takes some effort. Seeing the gap in dollars tells you whether that effort earns $40 or $400 over the term.
Weighing a renewal offer
When a CD is about to renew automatically, compare the renewal rate with an outside offer before the grace period ends. Once it renews, switching usually means paying a penalty.
Testing a promotional rate
A special rate may require a larger minimum deposit or a specific term. Run the promotion against a regular CD you would actually choose to see whether the special terms are worth accepting.
Splitting money across institutions
If you are spreading deposits to stay within insurance limits, comparing each bank's rate shows how much yield you give up, if any, by diversifying.
What trips people up when comparing CD rates?
Mixing APY with stated rates
One bank may advertise APY while another lists the nominal rate. Comparing a 4.40% APY with a 4.35% stated rate compounded daily is not apples to apples; convert both to APY first or enter each correctly.
Comparing different terms in one run
This calculator uses one term for both rates. If the offers have different terms, a one-year rate and a two-year rate, compare them in separate runs and think about what you would earn after the shorter one matures.
Overlooking the penalty schedule
A slightly higher rate with a much harsher early-withdrawal penalty may not be the better deal if there is any chance you will need the money early. The penalty is part of the price.
Chasing a rate past the insurance limit
Deposit insurance covers $250,000 per depositor, per insured institution, per ownership category. Putting more than that into one high-rate CD exposes the excess, which is a different kind of cost.
Forgetting tax shrinks both sides
Interest from both CDs is taxable, so the after-tax gap is smaller than the pre-tax gap. At a 22% bracket, a $608.91 advantage becomes about $474.95 after federal income tax.
How does the rate gap grow with the term and the deposit?
The gap grows a little faster than the term because extra interest compounds too. Luis's 0.45-point difference is worth $186.92 after one year but $1,102.00 after five, more than five times as much.
With the deposit, the relationship is exactly proportional. On a three-year term the same two rates differ by $152.23 on $10,000 and by $1,522.29 on $100,000. If your deposit is small, a modest rate gap may not justify opening a new account; if it is large, it usually deserves a careful look.
| Term | Interest at 3.90% | Interest at 4.35% | Extra earnings |
|---|---|---|---|
| 1 year | $1,588.19 | $1,775.11 | $186.92 |
| 2 years | $3,239.44 | $3,629.00 | $389.56 |
| 3 years | $4,956.25 | $5,565.16 | $608.91 |
| 5 years | $8,597.07 | $9,699.07 | $1,102.00 |
Terms used on this page
- APY (Annual Percentage Yield)
- APY is the amount you actually earn on savings in one year, expressed as a percentage, after accounting for how often interest compounds. A higher compounding frequency pushes APY above the stated interest rate. Banks must disclose APY under federal Truth in Savings rules, so it is the fairest way to compare accounts.
- Certificate of Deposit (CD)
- A certificate of deposit is a savings account that pays a fixed rate for a set term, such as six months or five years, in exchange for leaving your money untouched until it matures. CDs at insured banks and credit unions are covered by federal deposit insurance up to the limit, and early withdrawals usually trigger a penalty.
- Interest Rate
- An interest rate is the price of money, stated as a percentage of the balance per year. Borrowers pay it to lenders, and savers earn it from banks. The rate alone does not include fees or compounding, so it can understate the true yearly cost of a loan or overstate a simple comparison of savings accounts.
- Early Withdrawal Penalty
- An early withdrawal penalty is a charge for taking money out of a certificate of deposit before it matures. It is usually expressed as a number of days' or months' worth of interest, such as 90 days or six months. If you have not yet earned enough interest, the penalty can reduce your original deposit.
Compare CD Rates Calculator: common questions
Is a 0.5% higher CD rate worth switching banks for?
It often is on a large deposit or long term, and often is not on a small one. Half a point on $5,000 for one year is about $25 before tax; on $50,000 for three years it is several hundred dollars. Enter your actual deposit and term in the calculator to see the dollar figure, then weigh it against the time and any penalty involved in moving.
Should I compare CDs by APY or by interest rate?
Compare by APY whenever you can. APY includes the effect of compounding, so two CDs with the same APY earn the same over a year regardless of how often they compound. If you only have stated rates, use the same compounding in both or convert each to APY with the formula (1 + rate ÷ n)^n − 1.
Why does the difference between two CD rates grow over time?
The difference grows because the extra interest from the higher rate earns interest in later periods. In the first year the gap is roughly the deposit times the rate difference. Each year after, that accumulated advantage compounds, so a five-year gap is more than five times a one-year gap. On $40,000, a 0.45-point gap is worth $186.92 after one year and $1,102.00 after five.
Does compounding frequency affect a CD rate comparison?
Only slightly, and not at all in this calculator. Both rates use the same compounding schedule here, so it cannot tilt the result. In real offers, one bank may compound daily and another monthly; that difference is usually worth a few dollars, far less than a gap of several tenths of a point in the rate.
How do I compare a 1-year CD with a 2-year CD?
Run them separately, then think about what happens after the shorter one ends. A one-year CD at a lower rate leaves you free to reinvest after 12 months at whatever rates exist then. A two-year CD locks in its rate for both years. The comparison depends on where you expect rates to go, which no calculator can know.
Is the extra interest from a higher CD rate taxed?
Yes, the extra interest is taxed like the rest, as ordinary income in the year it is credited. That means the after-tax advantage is smaller than the figure shown. Multiply the extra earnings by one minus your combined tax rate for a rough after-tax gap. Interest earned inside a tax-advantaged retirement account is treated differently.
Can a higher-rate CD end up earning less?
Yes, if you withdraw early and its penalty is larger, or if it renews automatically at a poor rate. A higher rate only wins if you hold the CD to maturity under the terms you compared. Some promotional CDs also require larger minimum deposits, which may push money out of a better-fitting account.
What deposit amount should I enter to compare CD rates?
Enter the amount you actually plan to put in a single CD. The dollar gap is proportional to the deposit, so using a round number like $10,000 is fine for a quick sense of scale, but your real figure gives the number that matters for the decision. Keep deposits within insurance limits at each institution.
Sources
- Certificates of deposit (CDs) — U.S. Securities and Exchange Commission (Investor.gov). Accessed October 17, 2026.
- Regulation DD (Truth in Savings), 12 CFR Part 1030 — eCFR / National Archives. Accessed October 17, 2026.
- Deposit Insurance — Federal Deposit Insurance Corporation. Accessed October 17, 2026.
- Topic no. 403, Interest received — Internal Revenue Service. Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations, last checked October 17, 2026. See our methodology.