If you are looking for a higher than average interest rate on money you do not need to access for a period of time, consider putting the money in a certificate of deposit (CD). These investment vehicles offer a consistent rate of interest for a specified time frame that can range from days to decades. If you want to figure out how much interest accumulates on your CD by the time it matures, you need to know the amount you invest, the interest rate, the compounding periods and the time until the CD matures.
1. Divide the CD interest rate by the times the interest compounds each year to find the interest rate per period. For example, if your interest rate equals 1.241 percent and compounds interest daily, divide 0.01241 by 365 to get 0.000034 as the daily interest rate.
2. Compute the interest rate per period plus 1. In this example, compute 0.000034 plus 1 to get 1.000034.
3. Raise the resulting sum to the power of the compounding periods in the term of the CD. In this example, if you have a 60-day CD, raise 1.000034 to the 60th power to get 1.002042047.
4. Subtract 1 from the result to find the term interest rate. In this example, take away 1 from 1.002042047 to find your 60-day interest rate equals 0.002042047.
5. Multiply the term interest rate by the investment amount to figure the accumulated interest on the CD. Finishing this example, if you put $20,000 in the CD, multiply $20,000 by 0.002042047 to find that $40.84 in interest accumulates over the 60 days.
- Make sure you do not need the money before the CD matures because the bank will charge early withdrawal penalties.
- money image by cherie from Fotolia.com