When you buy a certificate of deposit, you're committing to deposit a specified amount of money for a specified period of time so that you can earn interest on your deposit. Most CDs have an investment period between three months and 10 years, and banks may charge a penalty if you take the money out before the deposit fully matures. When the certificate of deposit matures, you'll receive the money that you originally invested, as well as any accrued interest. Determining the value of your CD requires a few calculations.
Read the disclosure statements for your certificate of deposit that the bank gave you when you acquired the CD. Pay particular attention to fine print regarding the terms of the certificate of deposit, including the interest rate, amount of months for the certificate of deposit and amount of the deposit. Contact the bank where the certificate of deposit was made if you do not have this information.
Plug in the terms into an online calculator. HCU and First State Bank offer such calculators in which you enter the amount of the deposit, interest rate and number of months that the cd has had to mature. These calculators also offer a selection for how often interest compounds, which occurs when the interest is added to the principal.
Use the following formula if you do not have access to a computer or if the terms don't fit within the calculator's framework: A = P(1 + r/n) ^ nt. In this equation, r is equal to the annual interest rate and is expressed as a decimal. P is the amount you deposited, n is the number of times the interest is compounded in a year and t is the number of years before the account matures. A represents the final value of the certificate of deposit, including all interest that accrues during the time period.
Check the fine print for any early withdrawal penalties. The Security Exchange Commission explains that if you're the sole owner of a brokered CD, you might be able to pay a penalty to the bank and get your money bank. However, if you're a co-owner with other customers, your broker will have to find a buyer for your portion, and you may suffer a loss of your original deposit if the CD has to sell it at a discount.
Some CDs might automatically renew at maturity if you don't withdraw the funds within a specified period of time. This situation may close the window in which you can withdraw the funds without penalty. Additionally, the CD may mature at the same rate at which you originally invested it, but this may not be a favorable interest rate in the present time period. Other CDs have call features, meaning that a bank can call the CD after a fixed period of time, decreasing the amount of time for the interest to accumulate and the ability of an investor to lock in an attractive rate.
- Wells Fargo: Certificates of Deposit (CDs)
- HCU: Certificate of Deposit Calculator
- First State: How Much Will My Certificate of Deposit Be Worth at Maturity?
- Federal Deposit Insurance Corporation: Certificates of Deposit: Tips for Savers
- Security Exchange Commission: High-Yield CDs – Protect Your Money by Checking the Fine Print
- DePaul University Quantitative Reasoning Center: Compound Interest Formula
- Federal Deposit Insurance Corporation: FDIC Consumer News
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