Interest Calculations are Important for CDs

Planning for your financial future in today’s economy is nothing short of challenging. Many investors are just now taking steps to help protect their principal and one way to ensure a bit of financial protection is through a low risk, FDIC insured CD. CDs can be chosen to either compound the interest or roll it over into a savings account. By opting for a CD with a compounding interest structure, your money can earn even more.

Interest calculation are important for CDs as it can help you understand the earning potential of the money you are investing. Typically CDs start earning interest the day they are opened, however the first month’s interest payment will not post until the completion of one month’s time. Then the second month’s interest will be earned not only on your initial deposit, but also on the interest that was added to your account. That behavior will continue for the life of your CD, until the CD matures. This pattern is the important feature of compounding interest.

When investing your money it is important to make it start working for you from the very beginning.  By analyzing interest calculations you can not only figure out the potential return on an investment but also compare the numbers in order to find your best investment option.

Since the current rate of return on CDs is quite low, investors looking for a safe place to stow their extra cash should choose short term CDs. With a short term CD, you can immediately start earning interest and your money can become available quickly. That way you can always switch to another higher interest earning CD.