You can calculate how much compunded interest you would earn on certificates of deposit.
Certificates of deposit, or a CD, is a type of deposit account. A certificate of deposit allows you to deposit your money, earn interest on the money and at the end of the term of the CD you receive your initial principal investment plus compounded interest. You can calculate your compounded interest with information such as the principal deposit amount, interest rate, the term of the CD and how many times per year the interest is compounded, such as quarterly would be four time a year.
Instructions
1. Enter the principal amount of your deposit into the compound interest calculator. This is the amount of money that you deposit into the certificate of deposit when you open it at the banks. For example, if you deposit $1,000 in the CD, then this is principal amount.
2. Type in the term of the certificate of deposit. Some calculators require you to type in the number of months, while others request this figure in the number of years until the certificate of deposit matures. For example, a 1-year CD is "1" for a calculator asking for years or "12" for a calculator asking for months.
3. Type in the interest rate that the certificate of deposit is paying. This is the annual interest rate, not the annual yield for the certificate of deposit. The annual yield for the certificate of deposit already accounts for the compounded interest, so make sure you are using the annual interest rate when using a compound interest calculator.
4. Identify how often the interest is compounded. Some certificates of deposit have monthly compounded interest, some are daily, annual, monthly or quarterly. Input how often the interest compounds on your certificate of deposit into the calculator.
5. Click the calculate or submit button on the calculator. The calculator provides you with the balance of the certificate of deposit at the end of the maturity. To determine how much you have earned in interest, subtract your initial deposit amount from the balance in the certificate of deposit at the end of maturity.
Tags: certificate deposit, compounded interest, interest rate, deposit into, annual interest, annual interest rate, annual yield
