Trying to build a nest egg for a rainy day can be confusing. It is sometimes difficult to calculate the interest you can earn on a certificate of deposit. Certificates of deposit compound interest daily. You can use online calculators or calculate the interest by hand with only a little time investment. The certificate of deposit will be calculated at an annual rate so you can determine the value of your certificate at the end of one year.
Step 1
Compare certificate of deposit interest rates among different financial institutions and note the dollar amount required for initial investment and the length of commitment time required to earn the interest.
Step 2
Determine the amount of money that you will initially invest in the certificate of deposit. This will be your principal value.
Step 3
Convert the interest rate on the CD to a decimal by dividing the percent number by 100. For example if you have an interest rate of 5%, divide 5 by 100. Your answer is .05.
Step 4
Divide this answer by 365, because there are 365 days in a year. In the example, the 5% interest rate recalculated into a decimal at .05 would then be divided by 365 for a daily interest rate of .00013698.
Step 5
Compound the number to account for the CD earning interest in succeeding days. Add 1 to the daily interest rate. In this example you would have 1.00013698. This represents the principal and the interest for one day.
Step 6
Raise the principal plus interest number to the 365th power to allow for compounding. In this example your compounded interest is 1.051265.
Step 7
Multiply the principal of your certificate of deposit by your compounded interest. If you have a $3,000 certificate of deposit you would multiply 3,000 by 1.051265 for an answer of $3,153. This is how much your certificate of deposit would be worth at the end of one year.
Tips and Warnings
- Certificates of deposit interest rate earnings usually go up as you invest more principal or commit to longer times, such as 24 month CDs.
- Double-check your calculations. Making errors with small numbers can mount up to large discrepancies.
Things You'll Need
- Calculator
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