Calculating CD interest (rate, dollars, invest, get)

[KittenSparkles]

This is a simple math problem, but I'm feeling a bit confused atm.

I like to use this CD calculator for CDs purchased at banks - https://www.nerdwallet.com/article/b.../cd-calculator (of course there are many out there). But that assumes the interest is being compounded.

I'm trying to calculate interest on brokered CDs, which don't have compounded interest.

Here is an example

$20,000 with a rate of 4.5% for 9 months.

What would the calculation be for that?

[Lowexpectations]

CDs can and often are compounding

https://www.investopedia.com/do-cds-...terest-5248340

[Lowexpectations]

Originally Posted by Lowexpectations

CDs can and often are compounding

https://www.investopedia.com/do-cds-...terest-5248340

Without compounding 20k/4.5/365*#ofdays

[hikernut]

The equation for calculating APY is mentioned in this article...

https://www.investopedia.com/terms/a/apy.asp

In order to calculate the exact APY for a CD that pays interest as coupons you need to know how the coupons will be invested, so there's obviously a bit of guesswork involved. You can calculate your exact APY only after the fact.

[Grlzrl]

Originally Posted by KittenSparkles

This is a simple math problem, but I'm feeling a bit confused atm.

I like to use this CD calculator for CDs purchased at banks - https://www.nerdwallet.com/article/b.../cd-calculator (of course there are many out there). But that assumes the interest is being compounded.

I'm trying to calculate interest on brokered CDs, which don't have compounded interest.

Here is an example

$20,000 with a rate of 4.5% for 9 months.

What would the calculation be for that?

($20,000 x ((.045/12))) x 9 = $675

You take the rate and divide by 12 but you first have to covert it to a decimal.

4.5% = .045

2.5% = .025

Then, multiply that by your principal to get the monthly interest amount. Then multiply that by the number of months.

Correction to add: It probably is more correct to use days. I think banks use 360 days?

[KittenSparkles]

Originally Posted by Grlzrl

($20,000 x ((.045/12))) x 9 = $675

You take the rate and divide by 12 but you first have to covert it to a decimal.

4.5% = .045

2.5% = .025

Then, multiply that by your principal to get the monthly interest amount. Then multiply that by the number of months.

Correction to add: It probably is more correct to use days. I think banks use 360 days?

Thank you!

I applied your formula (using months not days) to a six-month CD that just ended, and it matched the amount of interest, within a couple of dollars.

[Grlzrl]

Originally Posted by KittenSparkles

Thank you!

I applied your formula (using months not days) to a six-month CD that just ended, and it matched the amount of interest, within a couple of dollars.

Great. Happy to help.

[Chas863]

Originally Posted by Lowexpectations

Without compounding 20k/4.5/365*#ofdays

Not quite.


(20k x 0.045) (9/12) = Answer

(900) (0.75) = Answer

$675 = Answer

[Lowexpectations]

Originally Posted by Chas863

Not quite.


(20k x 0.045) (9/12) = Answer

(900) (0.75) = Answer

$675 = Answer

Your assumption is 360 days and they don’t all go that way

Sorry I mixed up the posters. I don’t think 9/12 is the correct answer as that’s not how it’s actually calculated. It’s actual days

[Chas863]

Originally Posted by Lowexpectations

Your assumption is 360 days and they don’t all go that way

Sorry I mixed up the posters. I don’t think 9/12 is the correct answer as that’s not how it’s actually calculated. It’s actual days

We can't calculate the exact number of days because the information given didn't say what months were involved. All we were told is that it was 9 months which equals 3/4 of a year.

Therefore, the amount of interest that it would earn in one year times 3/4 is the answer to the best of our ability to calculate with the limited information given.