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I have been considering either renewing my CD (Certificate of Deposit) from my local Credit Union which is at 1.35% APR (1.3591 %) dividend rate (monthly compounded) for one year. I recently noticed another local credit Union that has a regular share account with a dividend rate of 2.25% APR (2.27 APY), but the dividends are paid quarterly.

Not exactly sure which would be better. If you could provide the formula to calculate the total interest gained at the end of the term (One year, in this example) for both types, would be great.

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Excel has two functions you can use:

  • EFFECT to calculate the APY given an APR rate and the number of periods.
  • NOMINAL to calculate the APR given the APY and the number of periods.

Your question has the CD with a APR and the savings account that mentions both APR and APY. So convert them both to APY to compare them. The savings account (2.27 APY) will return more money based on the numbers in your question (2.27% vs 1.56%)

The previous part was the math part of the answer. The following takes into other considerations.

For this case the Savings account will return a larger amount of money if the conditions don't change. The CD rate is guaranteed, but the savings account could change every business day. The savings rate could go up, or down.

If you expect the savings account rate to rain higher than the CD you might not want to lock into the CD. If you expect the savings rate will drop then get the CD. Of course there are penalties if you cash in the CD early.

  • you meant the credit union share account is higher, right? you wish to edit? – JoeTaxpayer Feb 8 '12 at 1:41
  • I updated the question to reflect the correct APR and APY for the CD. I wanted to know how to calculate the total interest payout for each. As for the savings account, let's assume that the rate stays the same for the whole year. Also let's say for instance I have $10,000 for each account. How much at the end of the year would I have total? – Rick Feb 8 '12 at 1:46
  • Oops - When reviewing by answer my brain assumed that the higher rate had to be on a CD. That is normally the benefit of locking in. I have fixed the answer. – mhoran_psprep Feb 8 '12 at 2:53
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    At the end of one year for 10K at 2.27% gives you $227 in interest. For 10K at 1.3591% gives you $135.91 in interest. – mhoran_psprep Feb 8 '12 at 2:59
  • Great! But how did you get that result [formula]? – Rick Feb 8 '12 at 9:07

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