Search PRIMARY MENUSKIP TO CONTENT Sample Time Deposit Interest Rates INFORMATION HOW TO COMPUTE INTEREST EARNED FROM TIME DEPOSITS DECEMBER 12, 2012 MARTY 12 COMMENTS Time deposit fairly is a “good place to park” your extra penny while yielding some amount that can catch your attention. The interest amount is not that eye-popping but at least you are getting some for just “parking” your money which is not bad at all. The interest rate in a time deposit account can be at least 4 times compared to that offered in a savings account (you can barely notice the paltry amount that comes in to your savings account). But how is the interest amount computed in a time deposit? Before going through that, it’s important that you get familiarized first with some of the terms that you would definitely encounter when opening a time deposit account: Principal – This is basically the amount of money that you put on for time deposit – the amount that will earn interest. Term – The time (in days) that you let your money (principal) be locked-up – be it in 35, 63, 91, 182 or 364 days. Note that you cannot “touch” the principal amount during the term that you have committed. So if you are thinking that you might need the money in the coming months but you just cannot specifically tell when, then, just take the shorter terms, 35 or 63 days for instance. Interest rate – This is the percentage that your principal deposit will grow (minus tax) if you let it stay in a time deposit for 1 year. Note that this is an annual interest rate so don’t expect to get the full weight for a less-than-a-year term. The rate also depends on the principal amount and the duration of time deposit (term). You can find out more about how this interest rate works for the committed period in the computations below. Earned Interest (net) – The amount that you will get after completing the term of your time deposit. The formula to compute the net interest earned is something like this: Earned Interest (net) = Principal x Interest Rate x (Term/360) x (100% – Tax Rate) Sample Time Deposit Interest Rates “Interest Rate x (Term/360)” is used to compute the effective interest rate as the deposit term days is proportioned to 360 days or 1 bank year. “(100% – Tax Rate)” is the tax deducted from the gross interest amount earned. At present, the tax rate stands at 20%. To understand how the formula works, consider an example in which you opened a time deposit with principal amount of, say, Php 100,000 and with maturity date (term) after 35 days. Using the interest rate as shown in the corresponding table, the net interest earned is computed as, Earned Interest (net) = 100,000 x 1.625% x (35/360) x (100% – 20%) = Php 126.39 Your money is now Php 126.39 more for just letting it stay in a time deposit for 35 days. You can even open such an account without going to the bank. This is especially true for most of the banks nowadays such as the Bank of the Philippine Islands (BPI). All you have to do is apply your savings or current account online (via internet), activate it and you are ready to go. When activated, you can open your time deposit through your online account on which the principal amount is transferred from your savings or current account to your time deposit account. After maturity date, the principal plus the interest earned is deposited back to your savings or current account. All of these can be done with the click of the buttons and yes, without going to the bank. This online transaction is mostly suited for people who don’t have the time to go to the bank and for those who cannot go to the bank – like those working overseas. And opening a time deposit account would take you literally less than a minute. You can download here the worksheet that I have made to easily determine the interest amount that can be earned for a particular principal deposit. The tab “rate table” is the prevailing interest rates in BPI Direct Savings Bank (online) as of this writing so you may want to update this table from time to time as this really changes frequently. Just provide the principal amount in “computation” tab and select the term days to run the computation. I just limit the days to 35, 63 and 91 since half a year or a year is really a long time for your money to be locked-up. The figure below shows the computation results from the above example and using the worksheet. Time Deposit Computation Result While most of us have bank accounts for the sake of just stashing our savings and don’t really care how much our accounts would earn interest, it would be more prudent to have your savings in a secured haven while generating substantial amount. It may not be huge but the accumulation of it through time may make you think that you should have started doing this years ago. After all, you may already have heard the old clichéd notion that “time is money.”
Posted on: Sun, 18 Jan 2015 22:30:17 +0000
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