What Should The Amount Of Interest Be On This CD?

LJZ | Apr 6, 2017 | 1 posts since 2015

Please calculate the amount of interest on this promo CD I got from Great Lakes Credit Union and let me know what you come up with: It was a 15-month CD, with a rate of 1.489% and an APY of 1.50%, compounded monthly. The opening deposit amount was $237,425.30.

What is the amount I should have received at maturity? The credit union sent me a check for about $40 less than I thought it should be, and when I called them they said their "accounting dept." said the amount they sent me was correct.

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Answers

ChrisCD | Apr 6, 2017 | 134 posts since 2010

I come up with an interest amount of $4,457.67, for a total maturity amount of $241,882.97. The yield is actually a 1.499% but that shouldn't have made a $40 difference. What did they send you? I used a term of 1.25 years (15mos).

Ally6770 | Apr 6, 2017 | 4,292 posts since 2010

The APY is 1.50% so for the first year I came up with interest of 3,561.38 for 12 months and added to the principal that would be 240,986.68 and 1.50% APY for 3 months would be 903.70 for a total of $241,890.38. The interest is compounded annually.

Bozo | Apr 6, 2017 | 1,375 posts since 2011

You might want to check their fee schedule. Oftentimes, when I have liquidated a matured CD, there is a liquidation or "close-out" charge. I seem to recall $25 was standard, but $40 would not shock me. You might contact the credit union and pose this question to them. The credit union should be able to provide you with an accounting showing the inception balance, the credits, and any deductions.

dave9354 | Apr 7, 2017 | 58 posts since 2010

Bozo, l have never encountered a close out fee on a cd when held to maturity. It would be interesting to know which banks and credit unions charge a fee.

Bozo | Apr 7, 2017 | 1,375 posts since 2011

Dave9354, oops. I was remembering my IRA transfer fees. Patelco's, for example, is $20. But that just for IRA CD transfers.

h_meister | Apr 7, 2017 | 32 posts since 2014

There are several issues that could be at play here and I can come up with several income projections.
1) Most banks / CU's are on systems that calculate interest on a daily basis and accrue it on a monthly or quarterly basis. You didn't mention when the CD matured but I'm assuming it was in the last month. With February being only 28 days, quarter 1 has only 90 days and you lost 1.25 days versus a calculation using a term of 1.25 years. That variance is about $12.
2) Second issue is whether Great Lakes used 365 or 366 days when calculating 2016 interest. Using 366 days in the interest calculation will reduce earned interest by about $10.
3) What were dates listed on certificate. I've seen credit unions cut a day or two off and it is usually to have the CD end on a business day.
4) What was actual rate they used. I've seen interest rates quoted to tenth of a basis point (1.489%) and when the CD comes in mail see a different rate that is to several decimal points. This can occur on APY as well.
Without knowing the particulars of your CD it's hard to say is there is "sleaze" factor with Great Lakes but with a 1% shortfall to what you were expecting, I would can appreciate your frustration.

Ally6770 | Apr 8, 2017 | 4,292 posts since 2010

By federal law the CD has to pay the stated APY. How they compound the interest montlhy, weekly, etc makes no difference. In the 3 month period it can go by the days in the months but cannot differentiate from the APY. They will state in the disclosure if they use a 365 or 366 basis and some will change only for leap year. The end rate cannot be different from the APY.

Kaight | Apr 10, 2017 | 1,192 posts since 2011

2016 was a leap year. It would be easier to calculate this if we knew the stated start day of the CD, and the stated maturity day. When a CD term spans a leap day, 366 days are oftentimes used to calculate interest.

Ally6770 | Apr 10, 2017 | 4,292 posts since 2010

Not with APY. The amount would be the same whether 365, or 366 days. The APY was stated as 1.50%. The days would be used after the 12 month period.

Bozo | Apr 11, 2017 | 1,375 posts since 2011

Ally6770, have you requested an accounting from Great Lakes Credit Union?

Ally6770 | Apr 13, 2017 | 4,292 posts since 2010

I have not. I only know that when I worked at a bank for 30 years APY is what they have to go by whether the year is a leap year or not. Some banks used to go by 360 days in a year. Makes no difference unless it is not a full year the CD would have the same interest paid for each year no matter whether they used 360, 365, or 366 days.
It used to be law that when people called and asked for the interest rate on a CD the APY had to used first then the rate. Those figures can be different.

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