P S .031 is a terrible rate. For 1 yr $1,000 you should get about 1%
easy example 12% per year RATE aka 1% per month ... 1000*(1 + .01)^12[months of compounding] = 1126.825
which is $6.83 higher than 12% added onto the $1,000 [ = 1,120.00 ]
CDs don't pay dividends, they pay interest. The APY stands for annual percent yield. If you were quoted 0.31%, then that's the annual yield you can expect in one year. If you invest $1,000, you should expect to get back 1000 x 1.0031 or $1003.10 in one year.
If the bank said "dividend rate", then perhaps they meant annual percentage rate or APR which is the annual interest rate BEFORE compounding. But as you can see from the table below, the APR cannot possibly be 0.30% if the APY is 0.31% (unless there's rounding involved) regardless of n. Given the APY of 0.0031 (or .31%), your APR for different types of compounding periods per year (n) can be calculated as APR = n * ((1 + APY) ^ (1/n) - 1
APY . . . . compounding . . n . . APR
0.0031 . . . Annual . . . . . 1 . . . 0.0031
0.0031 . . . Semi-Ann . . .2 . . . 0.003097601
0.0031 . . . Quarterly . . . .4 . . . 0.003096403
0.0031 . . . Monthly . . . . 12 . . .0.003095604
0.0031 . . . Daily . . . . .365 . . . 0.003095218
$1000 + 3% = $1030.
I'm going to buy a 1 year certificate of deposit tomorrow. The form my bank gave me says that the APY on that CD is .31% while the dividend rate is .30%. If the interest rate is compounded once yearly or more, I don't understand why the dividend rate would be lower than the APY. If I invest $1,000, how much should I expect to get back in a year?
