How to Calculate Returns for a Certificate of Deposit

A CD can yield great monetary benefits.
i Jupiterimages/ Images

A certificate of deposit (CD) is usually a considerably low-risk investment that required you to invest your money for a certain period of time from six months up to five years or longer. Some of the CDs are more complex and have higher yields and higher risks than others -- despite being federally insured. As of January, 2010 the federal deposit insurance was reduced back to $100,000 from $250,000. When determining your returns,you need to take certain steps to calculate the exact amount.

Step 1

Find out what your interest rate is for your CD and convert the percentage amount into a decimal form. For example, if your interest rate is 8 percent, convert this to its decimal form, 0.08. If your percentage rate is 10 percent, convert it to 0.10.

Step 2

Divide your decimal point by 365. This gives you the amount of interest that is earned in one day. For an 8 percent interest rate, you divide 0.08 by 365 and end up with the resulting figure of 0.0002.

Step 3

Add the number "1" to the beginning of the interest rate. The resulting figure represents the principal and interest for one day. The resultant number for an 8 percent interest rate is 1.0002.

Step 4

Compound the figure by raising 1.0002 to the 365th power. This equals 1.0833, which accounts for the compounding factor over the course of one year. The amount is known as your annual percentage yield (APY).

Step 5

Multiply 1.0833 with the actual amount of your CD to calculate your returns. If you have a $10,000 CD, at the end of the year you will have $10,833.

the nest