Compare deposit offers
CD APY vs. interest rate: what changes your return?
A CD's interest rate describes the rate applied under its account rules. APY expresses the effective yield over one year after accounting for the disclosed compounding assumptions, making differently compounded deposit offers easier to compare.
Interest rate and APY answer different questions
A nominal interest rate tells you the percentage used in the account's interest calculation. It may not by itself show the effect of compounding. APY answers what the effective annual growth would be if the stated conditions continued for a year and interest remained on deposit.
When compounding occurs more than once per year, APY can be higher than the nominal rate. If a product pays interest out instead of leaving it in the account, the relationship may be different. Always use the institution's official disclosure.
Compare like with like
Use APY to compare yield, then hold the deposit and term constant when testing maturity value. If one offer has a longer term, a larger ending balance may simply reflect that the money remained deposited longer.
Compare two CD offers with the same opening deposit. The calculator uses APY because it is already an effective annual measure.
Worked example
Read a 5% APY across two terms
With a $10,000 deposit and fixed 5% APY, a full year produces an estimated $500 of interest and a $10,500 maturity value.
A six-month term at the same APY produces approximately $246.95 of interest, not $500. APY remains an annual measure; the term determines how much of that annual growth period the money receives.
If two CDs show different nominal rates but the same APY, the modeled one-year ending value is the same under the APY assumptions. Their crediting schedule, payout options, penalties, and terms may still differ.
Compare deposit and term assumptions →The highest APY is not the whole comparison
Before choosing a CD, inspect:
- the maturity date and how long the money will be unavailable;
- early-withdrawal penalties;
- minimum opening deposit and balance tiers;
- whether the yield is fixed, variable, promotional, or stepped;
- interest payout and compounding terms;
- the grace period and automatic-renewal rules; and
- whether the issuing institution and deposit are federally insured.
The CFPB's CD overview highlights term, rate, and withdrawal penalty. The FDIC's shopping guidance adds account-agreement and insurance checks.
Why deposit disclosures use APY
Regulation DD standardizes APY calculations and requires deposit advertising that states an interest rate to present the applicable APY. The CFPB's APY calculation appendix includes examples for time accounts.
Plain Finance Tools does not convert a nominal rate into APY or reproduce every possible bank method. It starts from the APY supplied by the user. See how CD interest is calculated and the methodology for the model boundary.
Common questions
Frequently asked questions
Is a CD interest rate the same as APY?
Not always. The interest rate may be a nominal rate, while APY expresses the effective annual yield after the account’s compounding assumptions.
Should I compare CDs using APY?
APY provides a standardized annual measure, but also compare term, early-withdrawal penalty, minimum deposit, renewal rules, and deposit insurance.
Does a 5% APY mean a six-month CD earns 5%?
No. APY is annual. Under a fixed 5% APY assumption, six months of growth is about 2.47%.
Can the APY change after I open a CD?
A standard fixed-rate CD generally keeps its disclosed yield for the term, but variable-rate and stepped-rate products exist. Read the account agreement.