How to Reinvest an Interest Certificate of Deposit

You'll need to see an account representative to set up or change a time deposit.

You'll need to see an account representative to set up or change a time deposit.

Squeeze pennies out of dollars by earning interest. When your parents were young, a CD was a certificate of deposit -- not a compact disc for music storage. Now that music storage has moved to iTunes and downloads, the certificate of deposit is back for young couples as well as oldies. A CD is a time deposit that allows the bank to borrow your money for a specific period of time. You get a higher interest rate than you would for a standard bank account. You can always get your money from a certificate of deposit, but you pay penalties according to the contract terms.

Shop for current interest rates at banks and savings and loan organizations before you set up a certificate of deposit. You can get rates by telephone and they're usually good for a week. You’ll want the highest interest rate for the shortest period of time to give you the most money and flexibility with your account. When you reinvest your interest, you make more money with frequent compounding of the interest. You get interest paid on the interest already credited.

Refresh your memory about compounding of interest so you understand annual percentage rate and annual percentage yield. APR is a simple interest calculation without the interest reinvested in your CD. APY considers compounding, or reinvesting of the interest in your certificate of deposit. The highest APY rate will give you the most money when the time deposit matures. Check a CD calculator to compare rates.

Visit the bank or savings and loan with the best rate. Talk with an account representative, as tellers don’t handle time deposits. Review the terms of the certificate of deposit with the representative. Ask about the length of time, the initial deposit requirement and penalties for early withdrawal.

Invest in a CD with compounding of interest and no periodic payout and you will be reinvesting the interest. If you already have CDs that pay an interest payment by check, ask if you may change those to reinvest the interest. Most financial institutions can revise or amend the terms of the certificate of deposit to allow for compounding and reinvesting of interest without losing any benefits. The owner of the CD must sign the amendment to capitalize the interest. That's the same as compounding and reinvesting in banking lingo.

Mark the maturity date of your certificate of deposit on the calendar and don’t allow it to roll over to the interest rate the bank offers. Compare rates the week it comes due and reinvest your CD at the best APY rate.


  • You'll need a minimum deposit of $1,000 or more for a certificate of deposit. A jumbo CD pays higher interest. Most banks require $100,000 minimum investment for a jumbo CD.
  • The percentage rate for your CD is annual, whether the term is one year or 10 years. If you make 3 percent a year in interest, you'll have a little over 6 percent at the end of two years.


  • When interest rates are going up, putting your money in a CD for more than two years might lead to being “long and wrong” as bankers say. When interest rates are going down, you may want a longer term so you can stay with the higher rate. You can follow trends with the Bankrate CD Rate Index Trend.
  • The SEC warns against high-yield CDs from individuals or brokerage firms. They often involve high risk, with high penalties and the possibility of fraud. Certificates of deposit purchased from an approved financial institution are insured by the FDIC for up to $250,000.

About the Author

Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.

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