Normally, for Certificate of Deposits (CDs) how is the interest paid?

Question

Say for a six month CD at 5% interest on $1000.

Is it just 5% of the $1000 at the end or is it compounded any?

Answer 1

That 5% is probably the APR or annual percentage rate, or what you would yield if the money were left in that CD for an entire year. The rate of interest actually being paid is going to be lower than the APR. A 5% APR might actually have a rate of 4.9%, it will depend on the compunding. Most CDs pay interest at the end of the month, and that's when it compounds. If you take the interest out, you will not get the 5% APR, but get the lower rate.

If you're investing for 6 months, then you have to divide everything by 2 because all rates an yields are calculate on an annual basis.

Answer 2

The following was copied from https://www.53.com/wps/portal/pv/?New_WCM_Context=http://www.53.com/wps/wcm/connect/FifthThirdSite/Personal/CDs/
Interest begins to accrue on the business day of deposit. Interest will be calculated using the daily balance method. This method applies a daily periodic rate to the balance in the account each day. For CDs in an amount less than $100,000, interest is compounded continuously. For CDs in the amount of $100,000 or more, the simple interest method is used, and interest is not compounded. CDs in the amount of $100,000 or more have a maximum term of 60 months, require interest payouts at least annually, and may not be FDIC insured.

Answer 3

It's 2.5% (half of 5% for 1/2 a year) of the $1,000 paid at the end of the 6 months.