How Do I Determine the Interest Paid on a Certificate of Deposit From the Bank?

If you put money into a CD -- certificate of deposit -- account, picture the famous rapper MC Hammer pointing and telling you, "you can't touch this." A CD account is just that -- untouchable, unless you like paying penalty fees. CD accounts were designed to help you save without temptations to make withdrawals. They just draw interest over a set amount of time after you make an initial deposit. With a simple calculation, you can estimate how much interest has been paid on your CD account.

Formula

Step 1

Write down the compounding frequency, interest rate and initial deposit on the CD account. This example uses monthly compounding (in which interest is calculated on the account 12 times per year) along with a rate of 2 percent (.02 when expressed as a decimal figure) and an initial deposit of $10,000. With compound interest, you get paid interest on interest you've already earned.

Step 2

Determine how long the CD account has been open in, which in this example is .25 years.

Step 3

Insert your variables into a CD calculation formula to determine the interest paid to date. The formula is([(i/c)y+1]^c)D – D where "i" represents the interest rate, "c" is the number of times per year it compounds, "y" is the number of years it's been compounding and "D" is the initial deposit.

Step 4

Fill in your formula to complete the calculation. Here, the result is ([(.02/12).25+1]^12)10,000 – 10,000 or $50.11 in interest paid. Repeat this process whenever you want an update on interest paid by substituting "y," which is the number of years it's been compiling interest.

Online Calculators

Step 1

Use the Bankrate.com CD calculator to determine interest paid on a CD account. Enter the details of the CD, including rate and length, then click "calculate" to view the total interest accrued. Click "View Report" to see how the balance and interest changes over time.

Step 2

Enter information about your CD into the Bankaholic website's CD Interest Rate Calculator as another option. Type in the figure or move the bars over to adjust the terms of the CD. View the interest (profit) below the chart.

Step 3

Calculate CD interest using the tool at the Ally website. Choose the CD product, opening deposit and other details (as well as how often you want to renew the CD) to determine interest paid at maturity. The total interest paid on the account is the total amount shown in the chart less the initial deposit.

About the Author

Louise Balle has been writing Web articles since 2004, covering everything from business promotion to topics on beauty. Her work can be found on various websites. She has a small-business background and experience as a layout and graphics designer for Web and book projects.