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$5,000 daily compounding certificate of deposit

  1. Aug 7, 2005 #1
    howdy,

    i am considering of opening a $5,000 daily compounding certificate of deposit for six months with an interest rate of 2.78% and an annual percentage yield of 2.82%. how much money will i get after the six month maturity date and what's the formula for this? :redface:
     
  2. jcsd
  3. Aug 7, 2005 #2

    HallsofIvy

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    There are 180 days in 6 months (banks, I believe, use a nominal "360 day year"). Since this is compounded daily, calculate everything in terms of days- in particular, the daily interest is [tex]\frac{0.0278}{360}=0.0000772[/tex]. Applying that for 180 days,
    Yield = [tex]5000(1.0000772)^{180}= 5070[/tex]. Your $5000 will have earned $70 interest in the 6 months.

    (I remember when certificates of deposit would earn 10% a year. Of course, inflation was was 14% and mortgages were 18% then!)
     
  4. Aug 7, 2005 #3

    Pengwuino

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    what, Carter?

    Pff, banks and bonds right now are just a waste of time hehe. I think about 8 years ago or so, i was getting like, 2x as much interest in my savings account then I could get in a 2-year $10,000+ CD now-a-days.
     
  5. Aug 7, 2005 #4

    HallsofIvy

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    Yes, but now a savings account will give you about 1 1/2 to 2% interest- still about half what a CD will.
     
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