Basic CD Question

[Motnag]

Here is some information about a CD I am looking at:

Maturity Date:
06/03/2011
Coupon Rate %:
4.35
Coupon Type:
Fixed
Coupon Frequency:
Semi-Annual
Dated Date:
12/03/2008
First Coupon Date:
06/03/2009
Next Coupon Date:
---
First Settle Date:
12/03/2008
Insurance:
FDIC
Trading Flat:
No
In Default:
No
Survivor Options:
Yes

OFFER

Annual Percent Yield (APY):
1.556
Yield To Maturity%:
1.556
Yield To Call%:
---
Yield To Worst%:
---
Current Yield %:
4.159

Here is what I am wondering. What is the difference between the coupon rate and the APY? Do I get 4.35% of my investment back semiannually, plus 1.556% extra back at the maturity date?

[disneysteve]

I'm not positive but it appears that you are buying a CD through a broker as opposed to from the issuing bank and that you are buying it mid-term. CDs, like bonds, can be bought and sold on the secondary market. Their value fluctuates based on interest rates just like bonds. In this case, buying this CD today would earn you a rate of 1.556%.

I would not recommend doing that because you can get a 12-month CD right now for just under 2% from Ally Bank. Go to bankrate.com and search rates.

[Motnag]

Ok, that makes sense. What I'm still confused about is what exactly the coupon means though. Does the coupon determine the APY?

[disneysteve]

Ok, that makes sense. What I'm still confused about is what exactly the coupon means though. Does the coupon determine the APY?

I think the coupon rate was the original rate at the time the CD was issued. Since you are buying on the secondary market, that isn't the rate you would get.