How to Calculate How Much I'd Get Out of a Certificate of Deposit

by Michael Keenan

Certificates of deposit pay interest at a set rate, typically higher than other savings accounts. This is because they require you to leave the money with the bank until a specified maturity date. Before you commit to locking up your money, which could be several years, you can figure out how much interest your cash will earn. This requires the use of exponents -- numbers that are multiplied by themselves a specified number of times. For example, 2 raised to the 3rd power equals 2 times 2 times 2.

1. Divide the annual interest rate on your certificate of deposit by 100 to convert it to a decimal. For example, if your annual interest rate equals 4.5625 percent, divide 4.5625 by 100 to get 0.045625.

2. Divide this decimal by the times each year the bank compounds the interest. For example, if the bank compounds interest twice each year, divide 0.045625 by 2 to get 0.0228125.

3. Add 1 to the periodic interest rate on the CD. In this example, 0.0228125 plus 1 equals 1.0228125.

4. Multiply the times each year interest compounds by the years until maturity. In this example, if you have to hold the certificate of deposit for four years, multiply 4 by 2 to find the interest compounds 8 times.

5. Compute the sum of 1 and the periodic rate raised to the power of the result in Step 4. In this example, raise 1.0228125 to the 8th power to get 1.197755616.

6. Multiply the result by the amount you put in to the certificate of deposit to find out how much you'd get at maturity. In this example, if you put in $4,130, multiply $4,130 by 1.197755616 to find you will receive $4,946.73 at the CD's maturity.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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