How to Calculate How Much Money You Will Make Investing in CDs

by Mark Kennan

A certificate of deposit (CD) is a fixed-rate investment that you must leave your money in for a specified period of time. If you remove it early, you owe an early withdrawal penalty. However, you can calculate exactly how much your CD will be worth at maturity. Though the interest rate may appear lower on the CD than on other investments like the stock market, your investment in the CD is protected against loss by FDIC insurance, so you cannot lose money.

1. Divide the annual rate of interest on your certificate of deposit by the number of times each year your CD compounds interest. For example, if your CD compounds interest daily and pays an annual rate of 1.825 percent, divide 0.01825 by 365 to find the periodic rate on your CD equals 0.00005.

2. Add 1 to the periodic rate of interest on your CD. In this example, add 1 to 0.00005 to get 1.00005.

3. Raise the result to the number of times interest compounds on your CD. In this example, if you have two-year CD, raise 1.00005 to the 730th power because there are 730 days in two years to get 1.037173358.

4. Multiply your initial investment in the CD by the result to find the maturity value of the CD. In this example, if you invested $800 in the CD, multiply $800 by 1.037173358 to find the maturity value equals $829.74.

5. Subtract the initial investment in the CD from the maturity value to find how much you will make. Completing the example, subtract $800 from $829.74 to find you will make $29.74.

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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