Trying to understand Certificates of Deposit... If the bank is offering a %6 rate on a 12-month CD, does that?

Question

mean that my $1000 deposit will generate $60 a month or $60 in a year? Are these things worth it???

Answer 1

The rate offered is annual return, which means if you leave $1000 with them, in 1 year you will have $1060 (give or take $1 for the different calculations of interest compounding)

You can also choose to receive interest monthly, but by withdrawing interest that you could continuously compound (as assumed in the CD), you'll end up with a little less than 1060

Answer 2

It's $60 per year. $60 per month would be $720 or 72% return.
As for your second question -- the value of a CD, like most investments, depends on you and your goals.
For example, if you are 65 years old and may need the money to pay for your retirement, a CD at 6% would be a good strategy. It's a guaranteed return, you won't lose money and the $1000 is insured by a the federal governemt -- FDIC.

However, if you are 25 years old and don't need to touch this money for 40 years, you might look at putting it in a mutual fund or something that will generate a higher return for you over the years. But that strategy is risky and you could actually lose money. But generally, over the long term the stock market generates a higher return than most other strategies, including real estate.

To tell you the truth, 6% is a nice yield nowadays. You can compare that offer to other offers on msnmoney.com. They list the highest yielding CDs.

Also, another thing to consider it the beauty of compound interest. While $60 from $1000 does not seem like much, if you continued to get 6% interest the following year you would get 6% interest on $1060 and even higher the next year. Over 20 years, your $1000 will have earned more than $3,310 in interest alone!
Good luck and a very intelligent question!

Answer 3

First of all, you have to look at APY. This is how much you deposit will earn you on an annual basis. If it's 6%, that means you will earn 5 bucks a month not 60 (60/12=5). Some CD's compound monthly and quarterly.

Those things are worth it if you have a lot of money to invest, and also if you don't want to loose money. Keep in mind that you will pay taxes on the income earned for the period. If you are new to investing and you don't know too much about it, I suggest you stick with guaranteed returns such as CD's, Bonds, and T-Bills. If you want to be adventourous, go put in a Mutual Fund or something, but most MF's have high minimum initial investemnts

Answer 4

This is a problem of simple interest. The formula for simple interest is principal times rate times time or PRT. The principal amount you're using is $1,000 times the interest rate of 6% for one year (the time must be expresses in years so a 9 month CD would be 9/12 or 3/4 or 0.75)
1,000 x 0.06 x 1 = $60

The interest is totalled annually. With a CD, it doesn't mature until the time expires so if you decide that you need the money in 6 months, you can't get it out without paying a penalty and you won't get all of the interest. For a short term, safe investment, CDs are not that bad of an idea. But what you need to consider is that you will be paying taxes on your interest and that $1000 today is worth less than it will be in one year (mainly due to inflation). So at the end of the day, your real profit will be less than $60. Is it worth it to you to put aside the $1,000 for a year for a relatively small profit?

Answer 5

The 6% rate refers to the amount earned in one year. I like CD's because they are insured by the FDIC when purchased at your bank and the rate of interest is not that bad, especially when compared to savings account. They also have the added benefit of liquidity (you will lose some interest though if you withdraw before the deadline).

Answer 6

The rates are annual, so $60 per year, or a shade more depending on how it's compounded. It's a good rate.

Answer 7

why tie your cash up in a CD once you are able to save it liquid at 5.36 % supplied at AmTrust Direct. in basic terms google the call. ability to the people, vote with your cash and vote in the time of elections! One guy pretends to be wealthy, yet has no longer something; yet another pretends to be undesirable, yet has super wealth. Proverbs 13:7, New international version Plans fail for loss of suggestions, yet with many advisers they prevail. Proverbs 15:22, New international version

Answer 8

you are correct about the 60 dollars a year. these things are worth it if you cant find any better investments without more risks.