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PenFed CD question - compounded daily vs. simple interest
Old 11-05-2018, 03:56 PM   #1
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PenFed CD question - compounded daily vs. simple interest

A CD newbie question ..... The following is from the PenFed website:

"6 Month certificates earn dividends on simple interest basis. All other certificate dividends are compounded daily."

I was going to invest in a 6 month CD (2.2% at PenFed) when I noticed the fine print above. I'm definitely a member of the 'math is hard' crowd so I was wondering if this should cause me to look around. Or is that fairly common (i.e., simple interest) for 6 month CDs?
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Old 11-05-2018, 04:08 PM   #2
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Pretty sure it means you don't get interest on your interest. Just on your initial deposit
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Old 11-05-2018, 05:06 PM   #3
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Quote:
Originally Posted by Carpediem View Post
A CD newbie question ..... The following is from the PenFed website:

"6 Month certificates earn dividends on simple interest basis. All other certificate dividends are compounded daily."

I was going to invest in a 6 month CD (2.2% at PenFed) when I noticed the fine print above. I'm definitely a member of the 'math is hard' crowd so I was wondering if this should cause me to look around. Or is that fairly common (i.e., simple interest) for 6 month CDs?
It doesn't matter.... on $1,000 the difference is 6 cents.... $1,011.06 vs $1,011.00.

¬Ľ Certificate of deposit calculator
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Old 11-05-2018, 05:29 PM   #4
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Isn't the bottom line result reflected by the APY (not APR). I noticed that the 6mo CD is the only one with APR=APY. The others have APY a bit higher than APR. https://www.penfed.org/accounts/mone...et-certificate
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Old 11-05-2018, 08:21 PM   #5
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Originally Posted by kaneohe View Post
Isn't the bottom line result reflected by the APY (not APR). I noticed that the 6mo CD is the only one with APR=APY. The others have APY a bit higher than APR. https://www.penfed.org/accounts/mone...et-certificate


Thatís the way I look at it. When comparing rates use APY, not APR.
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Old 11-06-2018, 09:43 AM   #6
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Isn't the bottom line result reflected by the APY (not APR). I noticed that the 6mo CD is the only one with APR=APY. The others have APY a bit higher than APR. https://www.penfed.org/accounts/mone...et-certificate
Yes, APY reflects the impact of the compounding frequency on the annual yield.

Using the same calculator the APY of the 6 month compound CD is 2.212% and for the daily compounded CD is 2.224%.
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Old 11-06-2018, 11:42 AM   #7
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It doesn't matter.... on $1,000 the difference is 6 cents.... $1,011.06 vs $1,011.00.

¬Ľ Certificate of deposit calculator
Thank you! Very helpful.
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