This calculator will compute the future value and annual percentage rate (APR) of your certificate of deposit.
Certificate of Deposits Make Sense
When delving into the world of single deposit investment accounts head first, the first phenomenon you are likely to encounter is the certificate of deposit (CD). These accounts are popular among first time or shorter term investors who are more inclined to put aside one single sum of money as an investment and then forget about it or ignore for the term of the account, rather than having to deal with the complexities of savings accounts that require regular monthly contributions. CDs are an excellent method of maneuvering a sizable chunk of money over to a different location for the term of approximately three months to five years and watching it earn a high interest rate all on its own before withdrawing the new balance at the termination of the account.
The End Goal of Your CD
If you are putting money aside into a CD to use for a distinctly planned future purchase, it is helpful to understand just how much your yield will be at then end of the account's term. When you open up a CD with a bank or other financial institution you will be give an annual percentage interest rate and an interval at which your interest will be compounded, ranging from daily to monthly to quarterly. Generally with CDs, the more often your interest compounds the more interest you will earn. Not all compounding intervals are going to give you equal results by any means. When your interest is compounded daily, its interest can then begin earning interest, and so on as the financial yield ball gets slowly rolling, so to speak.
If you were using a CD to help save resources up for a big vacation a couple of years from now, you might begin with an initial deposit of $3000. Let's speculate that you put the money into a 36 month CD with an annual interest rate of 3%. At the close of the investment after 3 years, you would end up with a withdrawal amount of $3,282.51. As you will see from the computations of the certificate of deposit calculator, this net figure represents an annual percentage yield of 3.045% because the interest is compounded on a daily basis.
As we have seen, this tool not only gives you a method of comparing and contrasting the future values from various CD scenarios given, but also the annual percentage yields. You may choose how often your interest is compounded to determine this effective rate, which is different from the annual interest rate.
When shopping around for a CD, the number one thing that you will want to scout for is a high annual interest rate. Of course, checking into the detailed terms of the CD is a good idea, too. Make sure you as the investor check early termination policies and fees, just in case an emergency occurred and you needed to withdraw the money immediately. In addition, be sure to find out whether the type of CD you are acquiring is a single deposit or multiple deposit account. While most CDs are single deposit, those do exist that allow you to make further contributions to them if that fits better into your financial schema.