The dividend rate on a Certificate of Deposit (CD) represents the percentage rate at which investment earnings are paid out to the CD holder.
Think of it this way: a CD is a type of savings account that holds a fixed amount of money for a fixed period of time, and in return, the bank or credit union pays you interest. The "dividend rate" is essentially the interest rate for a CD.
Understanding the Dividend Rate
- Percentage of Earnings: The dividend rate dictates the amount of money you earn on your principal investment.
- Mirrors Interest Rate: According to the provided information, this rate closely mirrors what's traditionally known as the interest rate in other banking scenarios.
- How it Works: If you deposit \$1,000 into a CD with a 5% dividend rate, you will earn \$50 in interest over one year (assuming it compounds annually).
Example
| Principal | Dividend Rate | Earnings (Annual) |
|---|---|---|
| \$1,000 | 5% | \$50 |
