How is a term deposit calculated
Looking for a safe place for your funds? No plans to invest? But you don’t really want to keep your funds in the dresser located just left of the front door? The bank seems like the logical choice. You’ve though out depositing your funds because you’ve heard that there is the opportunity to make a profit this way, but don’t know how this works exactly?
Read this text all the way to the end and we’re sure things will become a lot clearer.
The Queen of Savings
A term deposit is one of the most popular forms of saving with banks.
Many choose this form of saving, as it keeps you from spending your money on things that are not a must. However, the reason term deposits are so popular is because they offer higher interest rates than you would get if you were to leave your money in a FlexSave account.
Term deposits are a long-term form of saving, and you will be required to leave your deposit with the bank for 12, 18, 25 or 36 months. For the most part, the rules are as follows: the longer the term deposit, the higher the interest. Clients are encouraged to leave their funds deposited for as long as possible. This way, the bank has longer access to these funds and can further invest and multiply them, until it’s time to pay them out the client.
When choosing a bank that you would leave your funds with, pay attention to stability in the bank’s operations.
Saving in the RSD or the EUR is equally secure, and ProCredit Bank has currently prepared a new special offer on new EUR deposits.
Monthly or annual interest accrual?
Rules and procedures differ from bank to bank. In some, interest is accrued on a monthly basis, while others offer up the interest after the end of the term.
In ProCredit, the calculation and payment of interest is done using a simple (proportional) calculation method, or, by applying the actual number of days in the month. In other words, interest is calculated and accrued on the last day of the month, at the moment of transfer to your current account.
You receive an additional income every month.
How is a term deposit calculated? - this formula brings you (a sure) profit
Now that you know what term savings are and what you should pay attention to, you probably would like to know how term savings are calculated?
The formula is pretty simple:
- The principal (amount of money you first brought to the bank) is multiplied by the interest rate coefficient, thus giving you your daily interest rate.
- You come to the interest rate coefficient by dividing the annual interest rate by 100 and then dividing it all by the number of days in a year (for example, an interest rate of 3.5%, divided by 100 you get 0.035 ÷ 365 days = interest rate coefficient
- Interest is calculated on the number of days the funds were saved
Let's make things even easier with this simple example.
You’ve decided to deposit your e 10,000 with ProCredit Bank at a nominal interest rate of 3.5% (NIR per year).
First, we need to calculate the interest coefficient and we do this as follows:
3.5%/100/365 = 0.00009589
Then we multiply this by the deposit, or principal amount, in order to get our daily interest rate.
0.00009589 x 10,000 = 0.959
Let’s say that you brought in your deposit on the 1st of the month for a period of one month.
0.959 x 30 = 28.77
This is how we derived at the monthly interest rate, or what will be available on your account at the end of the 30 days.
It’s important to know that there is a mandatory 15% capital income tax on savings not in the RSD currency. When we deduct the tax in this case, or e 4.32, we get a net of € 24.45.
Now, let's take, for example, that you decided to save for 36 months, so your total profit at the end of the term will be approx. € 885.
Not bad, right?
But, if you want to more precisely calculate the interest on a specific amount, you can do this using our calculator.
Early withdrawal (before the end of the agreed period) - possible?
Yes. But ...
If you withdraw your funds before the end of the agreed term, you can either receive interest for the number of months the money was in the bank, or you can lose the interest entirely, this depends mostly on the bank, as well as on the savings model you have chosen.
That’s why it’s best to think carefully about the period of time you wish to set your money aside for, and if you are a ‘first-time saver’, start with the smallest period available and with a smaller amount.
This is good exercise for building great habits.
Now that we have cleared up all of your misgivings, all you need to do is to decide where and for how long you would like to invest.
P.S. If you want to save like a PROfessional – great offers are hidden here.
We’re sure something of interest will ‘catch’ your eye.