How is deposit interest calculated?
A standard fixed-term deposit (like a CD) earns simple interest: pre-tax interest = deposit Γ annual rate Γ (term in months Γ· 12). In the US, interest income is taxed as ordinary income at your marginal federal (and often state) tax rate β there's no single flat withholding rate the way some countries apply. Enter your own estimated marginal rate above (a common example is shown pre-filled) to see an after-tax estimate.
Example
Deposit $10,000 at 3.5% annual interest for 12 months: pre-tax interest is $350. At an assumed 22% tax rate, that's $77 in tax, leaving $273 after-tax interest, for a maturity amount of $10,273.
Things to keep in mind
This calculator assumes simple interest on a lump-sum deposit, which is different from a recurring/installment savings plan where you deposit a fixed amount every month. Actual rates, promotional bonuses, and how your bank or brokerage reports interest for tax purposes can all vary β check with your own institution and tax advisor for exact figures.
Frequently Asked Questions
Why is the interest calculation different for a deposit vs. a recurring savings plan?
A lump-sum deposit earns interest on the full amount for the entire term. A recurring savings plan splits your contributions across many months, so each contribution only earns interest for part of the term β which means less total interest than a deposit of the same total amount.
Is interest on savings always taxed the same way in the US?
No β it's taxed as ordinary income at your marginal tax rate (which depends on your total income), not at one flat percentage. Some tax-advantaged accounts (like certain retirement accounts) can defer or eliminate the tax. Always check your specific situation.