CD Interest Payouts
Track quarterly receipts.
Estimated reading time: 1 minute
Regulation DD requires an interest-withdrawal warning for time accounts that compound and permit interest withdrawals: the stated annual percentage yield assumes interest remains deposited until maturity.
Fictional one-year CD: $10,000 principal, four equal quarterly periods, and 1% interest credited each quarter. Assume interest may be withdrawn without penalty, with no fees, taxes or other transactions.
Retaining interest produces $10,000 × 1.01⁴ = $10,406.04 at maturity, rounded only at the end. The one-year increase is approximately 4.0604%, not 4%.
Taking every quarter’s interest instead produces four $100 payments and leaves $10,000 principal. If those payments are kept separately without earnings, combined funds total $10,400.
The difference is $6.04 of interest on retained interest—not $406.04. Ignoring the four payments would compare different cash histories.
If the $400 was spent, the payout path has only $10,000 remaining; historical earnings are still $400. Retention supplied no interim cash in this model.
Check compounding, crediting, payout permissions and withdrawal penalties before planning bill payments. These fictional terms are not an available bank offer or a recommendation.
