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I'm curious how interest payments on certificates of deposits get paid out. Let's pretend you put $100 into a 5-year CD at 3% annual rate. Do you get:
Basically, I'm trying to understand the frequency of interest payments on a certificate of deposit.
Thank you!
It really depends on the terms of the particular certificate. For example, interest may be computed daily, but credited to the balance once a month. The CD should advertise an annual percentage yield (APY), which is slightly higher than the APR (annual percentage rate) that takes into account how the interest is compounded.
CDs tend to pay the interest at maturity but there are some that pay their interest on a different schedule.
The CD agreement will spell out how the interest rate is calculated and when and how the interest is credited to your account.
My credit Union credits the account with the interest on a monthly basis. But this doesn't appear to be the only option.
You should ask the financial institution what the compounding interval and the interest credit frequency is. You should also ask if you have access to that interest before the CD matures.
