How to Calculate Accrued Interest on a Quarterly Compounding CD

by Michael Keenan

Banks and other financial institutions offer certificates of deposit (CDs), at a predetermined rate of interest for a preset term. Banks benefit from CDs because they have a guarantee they will have the money to use for the term while customers also benefit because they typically lock in a higher rate of interest than a savings account. CDs vary in how often they compound interest. The more often interest compounds, the higher the effective rate of interest. For example, a CD that compounds interest quarterly will have a higher effective interest rate than one that compounds interest annually.

Step 1

Divide the annual interest rate by four to calculate the quarterly interest rate on your CD. For example, if the annual rate equals 4.8 percent, divide 0.048 by 4 to get 0.012 as the quarterly rate.

Step 2

Add 1 to the quarterly interest rate on your CD. In this example, add 1 to 0.012 to get 1.012.

Step 3

Raise the result to the number of quarters interest has accrued on the CD. For example, if you want to figure the accrued interest after 7 quarters, raise 1.012 to the seventh power to get 1.087085211.

Step 4

Multiply the result by the initial CD balance to find the balance after the specified number of quarters. In this example, if you started with $8,850, multiply $8,850 by 1.087085211 to find your CD is worth $9,620.70 after seven quarters.

Step 5

Subtract the initial amount from the current balance to find the accrued interest. Completing this example, subtract $8,850 from $9,620.70 to find you have $770.70 in accrued interest.

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