How to Determine CD Interest Rates
A certificate of deposit, known as a CD, is a great way to have your money work for you. Instead of earning a small amount of interest in your savings account, a CD will allow you to keep your money in the bank for a predetermined amount of time and collect a larger amount of interest. Before determining what kind of CD to get--and with which bank--it's important to know the interest rate of the CD.
Other People Are Reading
Instructions
-
-
1
Find out how often your interest is compounded, which means how often your interest is calculated and added to your initial investment. CDs are generally compounded either daily, weekly, monthly or yearly. Since most CDs are compounded monthly, for our example we'll be using a CD that is compounded monthly.
-
2
Find two numbers: your initial investment and your balance after one month. For our example, we have an initial investment of $1000 and $1002 after one month in the CD. $1002 minus $1000 is $2. That's a profit of $2.
-
-
3
Take the profit and divide it by the initial investment. In our example, that's $2 divided by $1000, which equals .002, or 2%. That is our interest rate.
-
1
Tips & Warnings
An easier way to determine interest rate is by asking a bank representative or using a CD interest calculator, which can easily be found by using a search engine.
