purchasing a certificate of deposit, there are three options for
how interest can be paid: check, transfer and capitalized. What
does the third option mean?
the interest payments are paid out periodically to you by means of a check or
transfer, then it's up to you to reinvest the money.
you actually earn over the term of the CD will depend on what interest rate you
earn on the reinvested interest payments.
With this method of interest payment, it's not likely
that you would earn the annual percentage yield, or APY, on the
Your yield could be higher or lower
depending on the reinvestment rate.
The bias would be toward
a lower rate since you're dealing with both smaller amounts of money and shorter
amounts of time.
Capitalized interest payments means that the
interest payments become principal (capital) as they are credited to the account.
The interest payments then start earning the
CD rate. This is the assumption that is used when calculating the APY on an investment.