CETES and compound interest: what happens when you reinvest?
Understand how reinvesting Mexican Treasury bills can create compounding, which inputs matter and why a fixed-rate model has limits.
Currency amounts in this article are Mexican pesos. The examples use a hypothetical rate because CETES yields change at auction and Mexican tax rules can change by fiscal year.
How compounding applies to CETES
CETES are zero-coupon debt securities issued by Mexico’s federal government. Buying one maturity does not lock in the same rate for many years. At maturity, you receive the amount due; compounding occurs only if you invest the proceeds—including the return—in a new security.
Reinvestment therefore creates a compound effect, but the rate on each new purchase may differ.
A simple gross-return estimate
For an educational approximation:
gross interest = amount x annual rate x days / 360Investing $10,000 for 28 days at a hypothetical 10% annual rate gives:
gross interest = 10000 x 0.10 x 28 / 360
gross interest = 77.78The $77.78 is before Mexican income-tax withholding (ISR) and other applicable adjustments. Actual proceeds depend on the purchase yield and current rules. Consult Cetesdirecto and Banco de México for official information.
Reinvesting principal and returns
If you withdraw each period’s return and reinvest only $10,000, three identical hypothetical periods produce $233.34 in gross interest. If you reinvest everything:
period 1: 10000.00 x 0.10 x 28 / 360 = 77.78
new principal: 10077.78
period 2: 10077.78 x 0.10 x 28 / 360 = 78.38
new principal: 10156.16
period 3: 10156.16 x 0.10 x 28 / 360 = 78.99
new principal: 10235.15The difference is small over three short periods but becomes more noticeable when reinvestment continues.
Inputs to verify
- The current yield for the maturity you intend to buy.
- Whether the term is 28, 91, 182 or 364 days.
- Applicable ISR withholding and tax treatment.
- Whether you need liquidity before maturity.
- Whether automatic reinvestment is enabled and available for your holding.
A fixed-rate projection cannot reproduce changing auction yields, purchase dates or future taxes. Confirm product settings directly in the official platform.
Use a calculator as an approximation
In the compound interest calculator, enter the initial principal, use an annual rate as an explicit assumption, set contributions to zero and compare reinvestment with a non-reinvested scenario.
For longer projections, also account for inflation and review the common calculator mistakes.
Frequently asked questions
Do CETES pay compound interest automatically?
A single CETE earns a return for its term. Compounding arises when you reinvest both principal and proceeds at maturity.
Does the rate remain fixed after reinvestment?
Not necessarily. Each new purchase uses the yield available at that time.
Does the calculator include ISR?
No. It models a constant gross rate. Estimate current tax effects separately.