Q. Can you explain compounding to me? Some banks offer daily compounding while others compound monthly. Is there a big difference on, say, a $10,000 CD for six months?

A. When interest is compounded, the percentage of interest due at a particular juncture (day, month, etc.) is added to your balance, so the next time that interest is paid, the previous interest payments added to your balance are included.

In theory, banks that compound your interest on a daily basis are better than those that compound it monthly. But in reality, the difference is minimal.

Using our CD calculator, we figured how much you'd earn on $10,000 for six months at 3% interest.

If the interest were compounded annually, you would earn $149; semiannually, $150; quarterly, $150.56; monthly, $150.94, and daily, $151.

As you can see, it makes little difference how the interest is compounded. Choose your account by the interest it pays and don't worry about the details.

You can use the calculator listed above to work out different scenarios. And here's where to find out more about where CD rates are heading.