How do CD's work?

Question

My bank is currently offering a high yield CD with a 4.95% APY on a short 8 month term with a minimum deposit of $5,000. I've never opened a CD though so I'm not sure how they work. Also, what would $5,000 turn into at the end of that 8 month term with the said APY of 4.95%?

Answer 1

CDs are like timed savings accounts that you can't touch until maturity.

5,000 x 4.95 % = 247.5

247.5 / 12 = 20.625 ( average per month)

20.625 x 8 = 165 ( total 8 month maturity)

You'll earn $ 165.00 at the end of the term.

Answer 2

A CD is a Certificate of Deposit. You deposit the money - they give you the interest. It usually will pay you more when you invest the higher amounts. Although, if you can spare 5K without needing it for 8 months, it might be a good start for you. Remember - you don't want to touch the money for that time - there can be early withdrawal fees, service fees, etc. Check with the bank for any fees that there may be before you buy, such as commissions, early fees, closing fees, etc. They can come up with a few. You don't want to make it a wash.

Also, remember APY is Annual Percentage Yield - so, that is what you will earn in a year. If you keep it in for less, it won't be that same amount. Many different companies have calculators that will let you know an estimate of what you will earn.

Answer 3

CDs are basically short term bonds. The money used is to pay the real money given out in loans. When a bank or savings and loans gives out a loan for $600,000 to just one person to buy a house, that's one of the sources the money come from. Another source is the money market. In that senerio you would get $164.99 or $165 in interest depending on how the round it off.

Answer 4

you can figure that out(the calculation part) by going to google and type in CD calculator