Justapickup

If a CD (certificate of deposit) has an APR (annual percentage rate) of 0.85%, but the term is only 6 months, what is the earning on the principal? Say, I buy a CD in the amount of $10,000. At that rate, my returns will be $85, but only if it's a 12-month term, correct? What will the earnings be if it's a 6-month CD? Thanks,

magician

For 6 months, $42.50 (= $85 × 6/12).

Pinky

Look into capitalone360.com it's the old ING Direct. It's at like .75 up to .85 in their savings and YES CHECKING accounts. Totally liquid same APR.

I parked a bunch of money out there after our house sale for a while till we go buy a new place.

trapper

For short term calculations such as yours, the solution given by "magician" is good enough for all practical purposes. The actual final amount would depend on how often the investment is compounded....if at all.

The general formula for compound interest is:

A = P*( 1 + r/q)^( q*n)

A = Final Amount
P = Initial Amount Invested
r = Annual Rate of return (As a decimal value)
q = Number of times compounded per year
n = Number of years invested

If in your case the investment was compounded monthly for 6 months):

P = 10,000
r = 0.85% = 0.0085
q = Compounded 12 times a year
n = Term of investment = 6 months = 1/2 year = 0.5

A = 10,000 * ( 1 + 0.0085/12)^(12*0.5) = 10,042.58

Amount earned would be = 42.58

magician

True: I was assuming semi-annual compounding, that the rate on the CD was given as a bond equivalent yield (BEY).

Do CDs compound monthly? (I'd be surprised if they did.)

trapper

After seeing your reply I wasn't 100% sure so I checked the website of "Capital One 360" [formally "ING Direct"] and called "TD Bank". Both indicated that they do compound CD interest monthly.....so at least a few do.

magician

Interesting.

Thanks for researching it.