- 1). Figure the periodic rate by dividing the annual rate by the number of times each year your bank compounds interest. For example, if your CD compounds interest monthly and pays an annual rate of 2.952 percent, you would divide 0.02952 by 12 to get 0.00246.
- 2). Add 1 to the CD's periodic interest rate. In this example, you would figure 1 plus 0.00246 to get 1.00246.
- 3). Find the number of compounding periods in the term of the CD by multiplying the number of times each year interest compounds by the number of years in the term of the loan. For example, if you have a five-year CD that compounds interest monthly, you would multiply 5 by 12 to get 60 compounding periods.
- 4). Raise the step 2 answer to the power of the number of compounding periods. In this example, you would raise 1.00246 to the 60th power to get 1.158839124.
- 5). Subtract 1 from the step 4 result to find the overall rate of return. In this example, you would subtract 1 from 1.158839124 to get 0.158839124.
- 6). Multiply the overall rate of return by the amount initially deposited into the CD. In this example, if you started with $450 in the CD, you would multiply $450 by 0.158839124 to find you would earn $71.48 in interest.
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