How to Calculate Investment CD Interest
CDs, short for certificates of deposit, require that you leave money in the account for a specified period of time and in exchange, the bank will pay you a higher interest rate than traditional savings accounts. This interest rate is set for the term of the CD, meaning that even if rates fall, the interest rate on the CD will remain the same. You can calculate the interest on the CD if you know the term, how often interest compounds and the amount invested.
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Instructions
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1
Consult your CD paperwork or contact your bank to find out how many times per year interest compounds and the annual interest rate.
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2
Multiply the number of times per year interest compounds by the number of years (or fractions of a year) in the term of the CD. For example, if you take out a three-year CD that compounds interest semiannually, you would multiply 3 by 2 to get 6 compounding periods.
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3
Divide the annual interest rate by the number of times per year interest compounds. In this example, if you earned 3.4 percent interest, you would divide 0.034 by 2 to get 0.017.
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4
Add 1 to the result from Step 3. Continuing the example, you would a 1 plus 0.017 to get 1.017.
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5
Compute the result from Step 4 raised to the Cth power, where C equals the number of compounding periods in the term of the CD, found in Step 2. In this example, you would raise 1.017 to the 6th power to get 1.106434521.
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6
Subtract 1 from the result from Step 5. Furthering the example, you would take away 1 from 1.106434521 to get 0.106434521.
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7
Multiply the amount of money you invested in the CD by the result from Step 6 to find the total interest earned over the life of the CD. Finishing the example, if you invested $400 in the CD, you would multiply $400 by 0.106434521 to find that you would earn $42.57 in interest over the life of the CD.
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References
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