CD Interest terms means everything when it comes to CD accounts. 3% interest can have a greater affect on an account’s earnings than 1% interest can. Investors stand to double the return by choosing the best CD interest terms. Investors who want to expand their retirement portfolio put a great deal of time and effort into securing the best interest terms for their future. It is important to understand how these terms work in order to maximize profits.
How Certificate of Deposit CD Interest Is Calculated?
Calculating CD interest may be very intimidating to investors. All of the complicated terms, numbers, and letters confuse most people to the points where they are just content with knowing the interest rate—not how it is calculated. Investors should know how interest is calculated so that they understand how their money grows. This formula is less complicated than the ones that financial institutions use to calculate interest. This simple interest formula will give investors a general idea of what they can expect to earn from an investment. The formula is as follows:
I (Interest) = P (Principal) x R (Rate) x T (Time)
For example, if investors invest $1,000 (P) at 2% (R) for 1 year (T), they make $20 in interest (I). Remember, this is not an exact formula because financial institutions use their own complex formulas. One limitation to this formula is that it does not take compounding into consideration.
Tip on Finding the Best Certificate of Deposit CDs Interest Terms
- Search Credit Unions – Credit unions are great places to find good interest terms. They have a small overhead so they can offer better rates. Many people do not know about certain credit unions so the credit unions can use this to their advantage. Some credit unions may offer better interest terms in order to bring in new customers. Some may ever beat competitors’ rates. Investors should bring in the rates of competitors to see if credit unions will match those interest terms.
- Search Online Financial Institutions – Online shopping makes life so much easier. Investors who want to find great interest terms and rates just have to point, click, and everything that they want is right at their fingertips. Online financial institutions offer an abundance of competitive terms and rates. They too may be little known companies that have much to offer. Searching online allows investors to compare financial institutions side by side to find the best interest terms. Their rates tend to be slightly higher that local banks because they are trying hard to make their companies known. They want as much business as the can get so investors may get great deals by searching online.
- Search Local Banks – Local banks may be investors’ best friend. These financial institutions offer deals at various times of the year. They may offer great interest terms in order to get new customers to open accounts. They also like to keep up with competitive rates at times, but they tend to be at or lower than current market rates. Local banks love to take care of their customers. They may offer special deals to their long-term customers as a way to show that they appreciate their business. Financial institutions may be able to negotiate interest terms with their local banks as well.
- Search Personal Finance Blogs – Blogs are a good way to find others with the same interests. These blogs allow people to voice their needs, and others offer their help. Searching personal finance blogs can prove to be a great way to find great interest terms. When investors find a wonderful deal, they gladly share their finding with others on the blog. Investors can share information back and forth with each other to help other investors build their portfolios.
- Search Brokerage Firms – Many brokerage firms offer CDs at great rates and terms. Brokerage firms usually charge investors a fee for their service. They search for CDs with the best rates and terms so investors do not have to do any work. These CDs come in large bulk. Investors also have the option to sell, trade, or transfer these CDs in the secondary market. Investors may also be able to find CDs at deeply discounted prices that can help their portfolios grow.
CDs offer investors many ways to get the best interest terms available on the market. Investors have to do their research because it is their money that is lost or gained from the interest rates and terms that they choose. Financial institutions may be willing to bargain with investors who are serious about their financial futures. Without asking, investors never know what they can get.