Calculating Your Certificate of Deposit Manually

Most banks and financial institutions who wanted to offer Certificate of Deposit to their customers online has a online calculator. This calculator is used to determine how much you will get when your certificate of deposit matures.

The calculator is posted to assure their customers that using them for Certificate of Deposit will have better yield when compared to other banks and other financial institution.

But you have to know that the certificate of deposit is completely the same in all financial institutions when it comes to the formula in determining how much you will get when your CD matures. The only difference is the actual numbers they use. If the company has a higher interest rate then the yield will naturally be higher when the CD matures.

The calculator posted by banks and financial institutions usually calculates the yield you will get at the end of the year. But if you want to know how much you will get before the end of the year, you might want to manually calculate how much you will get. The formula may be lot complicated by hand so you might need a digital calculator to properly calculate the amount.

The Formula

First, convert your annual interest rate into a decimal form. This is very elementary since all you need to do is to move the percent (%) sign two places to the right. That means your interest rate of 8% will now be .08. Remember this figure since you’ll be using them a lot in a short while.

Second, divide the converted annual interest rate by 365 (one year). You have to know the daily interest rate applied to your certificate of deposit. In our example, the 8% which was converted to .08 is divided by 365 which should be .0002. That’s the actual daily interest rate applied to your certificate of deposit.

Third is the tricky part. Once you have the daily interest rate, you need to add one (1) to the .0002. It may sound cheating as you deliberately added a number to the formula but that number actually represents the principal. The number 1 does not multiply by itself but when applied with another number, it becomes the applied number. What you will then have is 1.0002.

Calculate how many days your CD will sit on your bank when you opt to withdraw them. Raise 1.0002 to the power of the number of days your principal will stay in the bank. If you let it stay for exactly 365 days, you will have to raise 1.002 to the power of 365. You will end up with 1.0833.

Lastly, multiply that amount with the principal amount. If you have $2000 as a principal amount, you will end up with $2166.60 ($2000 * 1.0833).

Do Not Forget the Penalties

That process presupposes that you will never have to pay any penalties and taxes. But if you are planning to withdraw your principal amount before maturity, you will have to pay the penalty fees which are usually the percentage of the amount entitled to you.

There are banks however that has a set of penalties depending on the principal amount. The higher the principal amount, the higher penalties you will have to pay. Taxes different from state to state but they are usually the percentage of the entitled amount.

It is important to consider the penalties before you opt to get your CD before maturity. The formula might get your hopes up in gaining something but after penalties and taxes, you are practically left with the principal amount. You practically used the bank as a large piggy bank – the money you deposited is also the money you earned with no gain.