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Author: mjcalab Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35387  
Subject: Re: CD rate up to 4.7% Date: 3/21/2005 3:01 PM
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Unless PFCU does things differently, the math here is wrong. The APY (ANNUAL percentage YIELD) is what the CD earns each year, not over the term of the CD. If what you said were the case, it would almost never make sense to take out the longer term CD, because you'd be earning less/yr the longer you held it. In reality, a 5yr CD earnring 4.88% APR (5.00 APY) would yield 27.6% over it's life. A 4 yr @ 4.55% APR (4.65 APY) yeilds 20.0%. Both example assume interest is compounded daily, which I believe PFCU does.

Thanks for checking my post for it is important for us to be critical of anything we read. But I think you missed the fact that I multiplied the annual APY times the number of years. You are right this is not 100% accurate but I have found it to be close enough. To be 100% accurate,(using Excel, one would earn over four years 19.996% on a the four year CD and 18.616% on the 5 year CD if sold at the end of five years, including the loss of the last 6 months of interest. The four year CD approch is better by 1.344%. Your right that is different then 1.40%. But that doesn't change my conclusion. I would sure appreciate it if you could explain in more detail what you mean by "it would almost never make sense to take out the longer term CD, because you'd be earning less/yr the longer you held it." I don't understand how you come to this conclusion.

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