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Accountants/Mathematicians Interest Question
Old 10-02-2007, 04:54 PM   #1
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Accountants/Mathematicians Interest Question

Since it's very important not to exceed $100,000 total in one account, (assume a CD here), can anyone give a formula to calculate the amount of principle one would need to deposit to arrive at exactly $100K on the date of maturity?

A good example is the 6.0% 3, 4, and 5 year MM certificates being discussed on this forum.

Pen Fed says these have a dividend rate of 5.83% and an APY of 6.00%
Dividends(interest) compounds daily on a 365 day basis and are credited monthly. Let's ignore leap year for simplicity.

Let the maths commence.
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Old 10-02-2007, 05:18 PM   #2
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Spread sheet or just use the calculator at the PENFED Site (see the top bar and select the calculators). FYI $66,480 at 6% APY and 5.83 APR will get you to a total of $99,979 in 7 years (I got tired of plugging the number). Additionally, the Bank Rate site has a very good calculator for this purpose and it is a bit easier to use and gives the same results using months. But you can always switch from having the interest accrue to the CD to having it paid to your share account and then transfer it someplace else if you are worried about the NCUA insurance limit. PENFED is the #2 CU (after NFCU) in the country in size and neither of these two institutions were involved in the so called "Liars Mortgages" referred in the PC press as Sub Prime. Also if you have a DW you could always put CD's in her name/his name to get $200K insurance. Could go further with another joint account too.
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Old 10-02-2007, 05:26 PM   #3
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Roughly, $100,000/(1 + interest rate)^years

For example, for 6% at 5 years, $100,000/(1.06)^5 = $74,725 initial deposit.

(Edit: this ignores stuff like daily compounding, which is why I said "roughly." You can simply change the interest rate to the daily rate and the period to years*365 to get daily compouning.)
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Old 10-02-2007, 08:03 PM   #4
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Knowing Pen Fed, I wouild just call them and ask. They will almost certainly be able to tell you and I would trust them to do so/ Alternatively, you could put 100k in and just tell them to send you interest checks every month.
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Old 10-02-2007, 08:11 PM   #5
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Just took a look at pen fed's 6/30 financials. They look at least as solid as most banks I see and they have plenty of capital and deposits. What they do not have enough of is long term deposits, which is why I think they are offering such a generous deposit rate on the CDs.

Bottom line, I see very limited credit risk in Pen Fed. You should stay under the 100k insurnace limit, but they are very solid IMO.
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Old 10-02-2007, 10:26 PM   #6
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Thanks guys. I have talked to Pen Fed personnel and they're very nice people. I'd have no worries about his organization at all, but I was just using them as a current example of a good deal.

I was mostly interested in a formula or algorithm to apply to any offering both for practical use when looking at actual offerings and just to have a little fun keeping my programming skills up to speed.
I recently realized it must have been four or five years since I even looked at a C++ compiler or BASIC interpreter. I'd probably just do it the easy, lazy way in Excel.
This is just re-inventing the wheel, because I know the routine has been coded millions of times already, but it doesn't hurt to keep your hand in.
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Old 10-03-2007, 12:42 AM   #7
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Up here in Canukistan only the first $100K is insured. So if you have $105K in an account, only 5K is at risk. Is it similar in the south or are any accounts with 100K+1 not insured?
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Old 10-03-2007, 01:41 AM   #8
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Originally Posted by kumquat View Post
Up here in Canukistan only the first $100K is insured. So if you have $105K in an account, only 5K is at risk. Is it similar in the south or are any accounts with 100K+1 not insured?

Any amount above $100k in an individual account is not insured, the same as up north.
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Old 10-03-2007, 06:57 AM   #9
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Originally Posted by twaddle View Post
Roughly, $100,000/(1 + interest rate)^years

For example, for 6% at 5 years, $100,000/(1.06)^5 = $74,725 initial deposit.

(Edit: this ignores stuff like daily compounding, which is why I said "roughly." You can simply change the interest rate to the daily rate and the period to years*365 to get daily compouning.)
+1. This equation will get you there.
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Old 10-03-2007, 09:00 AM   #10
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Quote:
Originally Posted by twaddle View Post
Roughly, $100,000/(1 + interest rate)^years

For example, for 6% at 5 years, $100,000/(1.06)^5 = $74,725 initial deposit.

(Edit: this ignores stuff like daily compounding, which is why I said "roughly." You can simply change the interest rate to the daily rate and the period to years*365 to get daily compouning.)
Or you can just use the APY (6.00% in the case of PenFed) and it should be exact. Or close enough for government work.

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Old 10-03-2007, 10:10 AM   #11
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Originally Posted by cho oyu View Post
Any amount above $100k in an individual account is not insured, the same as up north.
That is unless they are CD's in an IRA account in which case the insurance, both FDIC and NCUA, is up to $250K per individual.
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Old 10-03-2007, 09:06 PM   #12
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Or you can just use the APY (6.00% in the case of PenFed) and it should be exact. Or close enough for government work.

2Cor521
Agreed.

The 5.83% using monthly compounding means that if you divide it by 12 and compound for 12 months, you would arrive at the 6% APY.
(1+.0583/12)^12 = 1.06.

The formula Twaddle suggested is the way to go.

Quote:
$100,000/(1 + interest rate)^years
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