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Ask the expert: Does statement cycle affect CD rates?

August 19, 2011

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I have a multi-year CD, and the bank just told me they've switched to an annual statement cycle. I'm not sure I like that, but my main concern is whether this will affect how I earn interest. It seems to me that it will throw off the compounding if it's only paid once a year.

A: It's certainly reassuring to get a statement on your CD's progress every month, but since you are locked in to the term of the CD, there really isn't anything you are likely to do with that information. So, in the long run, an annual statement cycle shouldn't affect you much. The following are the things you should take into account in your situation:

  • CD rate. Switching to an annual statement cycle was probably a cost-cutting move, which is fine as long as the bank puts some of those savings toward maintaining the best CD rates they can. The proof will come when your CD matures. Given that your bank is offering you less information, you have a right to expect them to have an especially competitive CD rate when the time comes. Otherwise, that would be a good time to look elsewhere.
  • Compounding method. Check with your bank to see if the compounding method has changed. However frequently interest is paid, it's how frequently it is compounded that determines whether you are, in effect, earning interest on interest throughout the year.
  • Crediting of interest. The frequency of payment might matter if you decided to terminate the CD early. Find out how accumulated interest is credited throughout the year, between statements.

Based on this experience, you might put statement frequency on your shopping list the next time you look for a CD, but even so you might decide that you'd be content to sign up for an annual statement again if it meant getting the best CD rates.

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