posted
So it seems everytime I have a question about investments, etc., Lad Boy always comes through with some good advice. Tamper Lad, Vee and others have been helpful too on stuff.
Well, I'm a high-risk type of guy with my money and like to constantly do crazy stuff with it. Buuuuut, I do have some inkling to do 'safer' things.
So:
(1) I know what a CD is and all that jazz. But my question is, do you get a monthly return on a CD, or is it all just one big annual return at the end. What I mean is, if I have $10,000 in a 12-month CD at a rate of 5.0%, is that (a) $500 each month, (b) $500 at the end of the year, or (c) pro-rated each month so that its $10,000 x 5.0% x 1/12 = what I get in the month, and then its added into the $10,000 and calculated thereafter each month? Is option (c) the way it usually works, or does it depend on the bank?
Any LWer can answer but dammit, we need an ask Lad Boy thread around here to combine questions on both financial advice and sexual deviancy into one great thread
From: If you don't want my peaches, honey... | Registered: Sep 2003
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It does depend upon the bank. For the most part, the interest rate of a CD is the annual rate. So if it is a simple rate, then all you would get is $500.00 for the year. If it is a compound rate, then the interest you earn is added to the principal (That's the $10,000) Now interest can compound monthly, daily, or continuously (the last is the best and sexiest) Compounding monthly means the interest is calculated each month and then added to the principal. Compounding daily means the interest is calculated each day and then added to the principal. Compounding continuously means the interest is constantly being calculated and added to the principal.
In general with banks, the interest, no matter how it is compounded (or if it is simple), usually gets posted to the CD once a month. Also generally if the rate is compounding, the bank will give you a yield rate. The yield rate is the what the rate would be as simple interest. So using your example of $10,000, if the rate is 5.0% compounding with a yield of 5.25%, then after a year you would get $525.00
And a word of advice to those who might answer questions on this thread. I would say you should be careful not to give financial advice or recommendations. Only give general information. Nightcrawler and Lightning Lad don't need the SEC calling them.
-------------------- Five billion years from now the Sun will go nova and obliterate the Earth. Don't sweat the small stuff!
From: Boston | Registered: Aug 2003
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posted
But I really wanted to pump up and dump some of the dogs in my portfolio.
Generally banks will give you a bit of a premium for a deposit that cannot be cashed until it matures, As opposed to an investment that can be redeemed and invested into something else if the environment changes (or withdrawn and used for a downpayment on a major purchase if you need a house or car etc.)
So if you think you might need the money before the term expires you should make sure its redeemable before the term without penalty. And what Quis says is correct, the Annual Percentage Yield (APY, what your money earns in a year) is what you should use to make for an Apples to Apples comparison when rate shopping. Banks often try to confuse the issue by quoting the compounding rates and such.
From: Canada | Registered: Apr 2005
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Its more of a 'I want a new way to make money' thing than a 'I need this money now', so I enjoy this fruitful conversation about finance and deviancy.
Jeepers though...$525 on ten grand doesn't seem like all that much! This greedy youngster needs more! More, I tell you, more! Now...$550 might seem more reasonable.
From: If you don't want my peaches, honey... | Registered: Sep 2003
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posted
Well Cobie, I made up that annual percentage yield. You won't get rich off of CDs. But generally they are a safe investment as your money is insured. All bank deposits are insured by FDIC (Federal Deposit Insurance Corporation) up to $100,000.00 per depositor per insured bank. Some banks also have private insurance which insures deposits over the FDIC limits.
Fat Cramer,
Let me know if you get the Mr. Whippy ice cream machine. I'll be over for a cone. My opinion is Chocolate.
-------------------- Five billion years from now the Sun will go nova and obliterate the Earth. Don't sweat the small stuff!
From: Boston | Registered: Aug 2003
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