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Certificate of Deposit rate calculators are
useful in determining the amount of interest an investor will earn
on a CD. If an investor enters information about the initial deposit
amount, the number of months for the CD to mature, interest rate
offered by the institution etc, he/she can calculate the amount of
rate of return that can be earned on CD.
The
calculator gives results relating to the detailed schedule of the
Annual Percentage Yield (APY) and the ending balance of the CD on
the date of maturity date. Annual Percentage Yield is the effective
annual rate of interest earned for the CD without considering the
frequency of compounding the interest amounts along with the
starting balance of the CD. Sometimes investors have the option of
reinvesting the interest amount to the opening balance of the CD in
which case they will get a higher compound rate of interest.
The APY measures the actual rate of interest that an investor can
earn annually. The APY is also useful for comparing the interest
rates of different CDs and their compounding frequencies.
Compounding is the process of reinvesting the interest amount so
that investor will get interest on that particular CD is accumulated
interest.
A CD rate calculator also allows an investor
to choose that particular frequency that the CD is interest is added
to his account balance. A higher frequency allows the investor to
get additional compounded interest on the accumulated interest
sooner.
If an investor wishes to maximize yields on
CDs while maintaining liquidity simultaneously, a CD laddering
calculator is useful. The working of CD laddering can be explained
with the help of the following example. Suppose Mr. A has $50,000 in
cash reserves. If he buys a $10,000 one-year CD, a $10,000 two-year
CD and so on until his last investment is in the 5-year CD of
$10,000 so that each year is a rung on the ladder, then whenever the
one-year CD matures he reinvests that money in a five-year CD. By
that time, his five-year CD has four years left until it matures. As
each year's CD comes due, he will roll it into a five-year CD. By
implementing CD laddering, his total interest income will be much
higher. CD laddering calculators are very much useful for the
determination of these maximum yields if the investor enters a few
details about his investment amount.
Using a CD rate
calculator is a great way to keep track of interest earned from CDs.
A CD laddering calculator is used to keep track of complex
investments made over time.
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