How do you add monthly interest to a CD in a Brokerage account?

bruciebabe

CDs are held in c brokerage account. Adding monthly interest as reinvestment requires addition of shares. There are no shares if just interest. Adding monthly interest as just interest, just adds cash to the account and does not increase the value of individual CD. There appears to be no way to show the true value of the individual CD.

Boatnmaniac

I take it your brokerage account is a manual (offline) account and you are not downloading from the brokerage. Is this correct?

If you are downloading, the brokerage should have downloaded a security for the CD and then be downloading transactions to account for interest that is actually paid out prior to maturity. Usually these interest transactions will be deposited to the cash balance (or the "sweep account") of that brokerage account because interest paid out prior to maturity does not change the value of the CD.

CDs that do not pay out interest until the maturity date: On the maturity date there will likely be 2 transactions downloaded…one returning the amount of the origianal purchase price and one that is an interest payment (again, deposited to the brokerage account).

Also, downloaded brokered CDs will have a market value so while the CD is held and prior to maturity the brokerage will download the current market value of the CD.

If you are manually managing the account and these are brokered CDs (these are the kind that brokerages usually sell): It is best to follow the practice of the brokerage.

If you wish to manaully do something different from how the brokerage manages it: I have never seen a CD (and I have a number of them) with a reinvested income transaction that increases the value of the CD. But if you want to do this you could:

1. Make sure your CD is set up as a manual security.
2. Set up or edit the original transaction in the brokerage account for the purchase of the CD to show $1/share and the number of shares to match the purchase cost of the CD. For example, a $1000 CD would have an initial Buy transaction of 1000 shares @ $1.00 ea.
3. When you get an interest payment you can enter a Reinvest - Income Reinvested transaction and enter it for the dollar value of the interest and an equal number of shares which will calculate at $1/share. For example, a $5.17 interest payment would be entered as $5.17 interest for 5.17 shares which will then show a per share cost of $1.00 ea.
4. When your CD matures, you do not enter a transaction for the accumlated interest received because the interest has all been accounted for previously. Instead, just enter a simple Sell transaction for the full appreciated value of the CD at $1.00 per share.

Questions? Comments?

bruciebabe

Thanks for the info. I will give it a try.

Rocket J Squirrel

Adding monthly interest as just interest, just adds cash to the account and does not increase the value of individual CD.

This is correct behavior. The value of the CD does not increase due to interest payments. It's not a reinvestment.

I have never seen a CD (and I have a number of them) with a reinvested income transaction that increases the value of the CD.

Neither have I. I think you're over-thinking this, @bruciebabe .