## Using CD Interest Calculator

CD interest calculator will help you calculate the total amount to be received along with interest, which will be earned when you invest the amount in the certificate of deposit.

#### CD Interest Calculator

M = I x ( 1 + i/N )^{nxN}

- I is the initial amount that is invested
- i is the fixed rate of interest
- N is the frequency of interest being paid
- n is the number of periods for which investment shall be made

### About CD Interest Calculator

The formula for calculating CD interest as per below:

**M = I * ( 1 + i/N )**

^{n * N}Wherein,

- M is the total maturity amount
- I is the initial amount that is invested
- i is the fixed rate of interest
- N is the frequency of interest is paid
- n is the number of periods for which investment shall be made.

The CD is a type of investment product that stands for a certificate of depositCertificate Of DepositCertificate of deposit (CD) is a money market instrument issued by a bank to raise funds from the secondary money market. It is issued for a specific period for a fixed amount of money with a fixed rate of interest. It is an arrangement between the depositor of money and the bank.read more. This is an investment where the investor lock in his funds to earn a little higher rate of interest compared to other products and if an investor invests for a longer period, then he would earn more amount of interest as the rate would be higher.

The interest payout could be annually, semi-annually, or quarterly, depending upon financial institutionFinancial InstitutionFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. read more terms. The interest is compound interestCompound InterestCompound Interest is the interest earned from the initial Principal & the previously accumulated Interest amount. This is also known as “Interest on Interest” & it is always higher than the Simple Interest. read more, and this calculator will calculate interest accordingly and provide the result as the total amount at maturity, including interest.

### How to Calculate CD Interest?

One needs to follow the below steps in order to calculate the CD interest along with the total amount at maturity.

**Step #1: **Determine the initial amount, which is to be invested that would be the initial investment.

**Step #2: **Figure out the rate of interest that is being provided on the certificate of deposit and the frequency of the same being paid. That is how many times it will be paid in a year, which shall be denoted by N.

**Step #3: **Now, determine the period or number of years for which it shall be invested.

**Step #4: **Divide the rate of interest by the number of times the interest would be paid for in a year. For example, if the rate of interest is 5% and it pays semi-annually, which means the interest would be paid out twice, and therefore the rate of interest would be 5%/2, which is 2.5%.

**Step #5: **Now multiply the investment amount by the applicable rate of interest using the formula discussed above.

**Step #6: **The resultant figure will be the maturity amount of the certificate of deposit, including the interest.

### CD Interest Examples

#### Example #1

JP Morgan and chase is one of the leading investment banks in the united states. It has initiated a new product in a bucket of the certificate of deposit. The scheme states that the minimum amount which is required to be deposited is $25,000, and the minimum duration is 6 months. The APY for this scheme is 2.25% if invested for more than one year else, 1.98% for all deposits for less than a year. The interest will be compounded semi-annually.

Suppose if one invests in this scheme for 2 years, then what will be the amount received at maturity?

**Solution:**

We are given the below details:

Sr No | Particulars | Amount |
---|---|---|

1 | Investment Amount | $25,000.00 |

2 | Rate of Interest | 2.25% |

3 | Frequency in Months | Semi-annually |

4 | Frequency in Number | 2 |

5 | n – number of period to be invested | 2 |

- I = $25,000
- i = Rate of interest, which is 2.25% that is applicable for a period of 2 years
- N = Frequency which is semi-annually, and interest will be paid twice a year
- n = number of years the investment proposed to be made, which is 2 years here.

Now, we can use the below formula to calculate the maturity amount.

**M = I * ( 1 + i/N )**

^{n * N}- = 25,000 * ( 1 + 2.25%/2 )
^{2 x 2} **=$26,144.13**

**Compounded interest amount**

- = $26,144.13 – $25,000
**= $1,144.13**

#### Example #2

Three of the banks are offering limited period CD and Mr. X wants to invest $89,000 in the one which pays the highest amount at maturity.

Bank I | Bank II | Bank III | |
---|---|---|---|

Period Allowed | 2 years | 2 years | 1 year & 6 months |

Rate of Interest | 4.50% | 5.00% | 6.00% |

Interest Payout | Quarterly | Annually | Semi-annually |

Based on the above information, you are required to advise Mr. X as to where he should invest in order to earn the maximum amount at maturity.

**Solution:**

#### BANK I

- I = $89,000
- i = Rate of interest, which is 4.50% that is applicable for a period of 2 years
- N = Frequency which is Quarterly here, hence interest payout will be 4
- n = number of years the investment to be made, which is 2 years here.

Now, we can use the below formula to calculate the maturity amount.

**M = I * ( 1 + i/N )**

^{n * N}- = 89,000 x ( 1 + 4.50 / (4 x 100 ) )
^{4 x 2} **= 97,332.59**

**Compounded interest amount**

- = 97,332.59 – 89,000
**= 8,332.59**

#### BANK II

- I = $89,000
- i = Rate of interest which is 5.00% that is applicable for a period of 2 years
- N = Frequency which is Annually here, hence it will be 1
- n = number of years the investment to be made which is 2 years here.

Now, we can use the below formula to calculate the maturity amount.

**M = I * ( 1 + i/N )**

^{n * N}- = 89,000 x ( 1 + 5.00 / (1 x 100 ) )
^{1 x 2} **= 98,122.50**

**Compounded interest amount**

- = 98,122.50 – 89,000
**= 9,122.50**

#### BANK III

- I = $89,000
- i = Rate of interest which is 6.00% that is applicable for a period of 1 year and 6 months
- N = Frequency which is Semi-annually here, hence it will be 6
- n = number of years the investment to be made which is 1 year and 6 months here.

Now, we can use the below formula to calculate the maturity amount.

**M = I * ( 1 + i/N )**

^{n * N}- = 89,000 x ( 1 + 6.00 / (2 x 100 ) )
^{1.5 x 2} **= 97,252.70**

**Compounded interest amount**

- = 97,252.70 – 89,000
**= 8,252.70**

Hence, Mr. X should invest in CD of Bank II as that is the maximum amount provided him at maturity.

### Conclusion

This calculator can be used to calculate the maturity amount when one makes an investment in a certificate of deposit, which offers safer and conservative investment when compared with stocks and banks. There is no growth, but it offers guaranteed returns.

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