Earn interest with a certificate of deposit.
Certificates of deposit allow investors to guarantee they will keep money in the bank for a defined period of time. The guarantee the investor will not withdraw the money allows the bank to offer a higher interest rate than a savings account. It is easier to calculate a certificate of deposit's value with an online CD calculator.
Instructions
1. Convert the interest rate to a decimal. For example, 10 percent equals 0.1.
2. Divide the decimal by 365 to determine interest earned per day. Using the example above, 0.1 divided by 365 equals 0.000274.
3. Add 1 to the number calculated above. For the example, adding 1 to 0.000274 equals 1.000274.
4. Raise the amount in Step 3 to the power of the amount of time the certificate of deposit compounds interest. If daily, then by 365; if monthly then by 12, if biannually, then by 2. For the example, if compounded daily 1.000274 raised to 365 equals 1.1052.
5. Multiply the certificate of deposit's principal, the amount deposited, by the number calculated in Step 4 to determine how much the CD is worth after one year. If principal was $5,000, then $5,000 multiplied by 1.1052 equals $5,526. This is a rounded figure for the CDs value after one year.
Tags: certificate deposit, after year, equals 000274, interest rate, number calculated
