On the surface, the interest rate seems to be the most important determining factor in selecting a Certificate of Deposit (CD). But the interest rate alone can't tell you what your return will be. There are a few other indicators to keep in mind when comparing interest rates on your CDs.
Annual Percentage Yield Annual percentage yield (APY) is the percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period. The APY of a CD depends on the rate it offers, as well as the frequency with which the interest is compounded. APY is the standard for comparing CDs from different banks, which may have varying compounding frequencies. However, it does not take into account fees if there are any.
Compounding simply means adding the interest earned onto the balance of your CD. Once that interest is included in your balance and is now principal, it will then begin earning additional interest. For example, an Ally Bank High Yield CD offers a competitive rate that is compounded daily. The more frequently compounding occurs, the faster your balance will grow. And of course, the longer the term of the CD, the more time it has to earn interest, compound that interest and then continue earning and compounding even more.
Resources for Calculating Interest Rates To determine the true earning potential of a CD, there are easy online rate calculators available. With our CD rate calculator, you can select a CD by term length; its current interest rate and APY will then be shown. Enter the deposit amount you'd like to begin with, select the number of times you think you will renew your CD, and the calculator will show you how much you have the ability to earn, taking into account that our CDs compound interest daily for maximum earnings.
When comparing interest rates and calculating CD returns, you'll discover that various types of CDs will bring different results. Outcomes vary by the amount of money you deposit, the CD term you select, the interest rate offered and the frequency of compounding interest. Consider the range of CD options provided by Ally Bank as you seek to get a good return from your savings.