How to Determine the Interest You Will Earn on a CD
A certificate of deposit is a way to take your hard-earned money and earn more money on it through interest. CD's don't mature over night, but in a few years you can make some extra cash to help you out later. CD's make a thoughtful birthday present for a newborn child as well. By the time she's grown, she'll have a little extra cash to help out with the bills. You can use a few simple steps to calculate how much your CD will earn in interest over a given period of time..
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Instructions
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1
Convert the interest rate of your CD into a decimal value. To do this, you divide the interest rate, 8 percent for example, by 100. For a CD with an 8 percent interest rate, this would give you 0.08.
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2
Divide this decimal value of the interest rate by 365 days for a CD that earns a daily interest rate for a year. If you want to calculate the interest for a shorter amount of time, such as 6 months, divide by the number of days in 6 months. For a CD that earns interest monthly instead of daily you would divide by the number of months and so forth.
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3
Add 1 to the answer you got in Step 2. The CD will earn interest and then the interest will earn interest. Adding 1 to the amount makes sure that all interest earned is calculated.
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4
Raise the answer you got in Step 3 to the power of 365. If you divided by a different number in Step 2, such as 12, raise your answer to the power of that number instead. For example, if you divided an 8 percent interest rate by 365 days and then added 1, you would have 1.0002192 raised to the power of 365. This gives you 1.083 when rounded to 3 decimal places.
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5
Multiply the number you reached in Step 4 by the original amount of money on the CD. This final answer is how much you will make for the amount of time you divided by in Step 2. If you divided by 365 days, for example, then your answer is the amount of money your CD will be worth after one year.
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6
Subtract the original amount the CD was worth from your answer to find out how much interest you earned. A $1,000 CD that has an interest rate of 8 percent and earns interest daily will be worth $1,083 after one year. This means the owner earned $83 in interest.
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Tips & Warnings
Several online calculators are also available to calculate and graph your CD's interest rate for you. You can find the links to a few of these in the Resource Section.
If your calculator doesn't allow you to enter in exponents, open the calculator on your computer and clicking "View." Then choose "Scientific." This mode allows exponents.
