2007-01-23 09:41:57 · 6 answers · asked by OLDSOUTHPARKII 1 in Business & Finance ➔ Personal Finance
Basically with Certificates of Deposit at a bank you take out a cd for a certain term. At the end of the term most Certificates will automatically renew itself. Of course you have the option at maturity to cash in the certificate or choose a different term. As far as the terms you have listed most banks will quote you an APY (Annual Percentage Yield) which I would assume is your 5%. The actual interest rate is probably 4.94% which is the APR (Annual Percentage Rate). The standard with most banks is that interest is paid either monthly or quarterly. However on CDs that are under a year interest would be paid at maturity. So in the end you would end up with $1,024.63.
2007-01-24 06:39:05 · answer #1 · answered by Answerman84 2 · 0⤊ 0⤋
A cd is simply an agreement between you (the depositor) and the bank that in exchange for agreeing to keep your funds on deposit for a specified period of time, the bank will provide a specific return. The answer to your question is no you will not have $1050 at the end of 6 months. To properly answer your question we need to make some assumptions. I'm going to assume that the 5% is the APY (not the stated rate used to calculate the interest during the compound interval) . The reason for this assumpion is that banks are required to quote cd rates in APY terms in order for customers to adequately compare cds from bank to bank who may compound interest at different intervals. I'm also going to assume the bank compunds interest monthly in this case. Therefore converting the 5% APY to the stated rate....your stated rate is 4.89%, and with monthly compounding you will have $1024.70 after 6 months.
note: You don't get half like others have said because the APY considers compounding over the entire year...the compounding effect becomes greater as more interest compunds in the later months of the year....Also banks typically give the depositor a choice whether to have the interest reinvested into the cd, deposited into a checking/savings account or mailed by check...the default if no choice is selected is typically to have the interest reinvested.
2007-01-23 18:17:48 · answer #2 · answered by SmittyJ 3 · 5⤊ 0⤋
Most banks will mail you a check monthly rather than have to pay compound interest. So if you got a check monthly it would be about $4.17 a month. 5% is per year probably, not per 6 month period. Or if they let it compound monthly, then you also get interest on the interest, so you'd get maybe $1025.26 at the end of 6 months.
2007-01-23 17:51:09 · answer #3 · answered by Michelle G 5 · 0⤊ 2⤋
Banks don't mail you a check for a couple bucks of interest every month. That only happens in Crackville.
Your interest would likely be compounded monthly. Which would get you $1025.26 over 6 months.
The 5% is an ANNUAL yield. Invest for 6 months, you get half.
2007-01-23 18:07:02 · answer #4 · answered by Anonymous · 4⤊ 2⤋
no, $25, the 5% is an annual percentage rate
1,000 x .05 / 12 months x 6 months
2007-01-23 17:49:05 · answer #5 · answered by edoubleyou 4 · 2⤊ 2⤋
Yes, that is cprrect.
2007-01-23 17:49:40 · answer #6 · answered by Someone 2 · 0⤊ 4⤋