How Is Deposit Interest Calculated? Simple vs Compound Examples
Term deposit returns, tax withholding, simple and compound interest and how monthly savings grow, with worked examples.
Before putting savings into a term deposit it helps to know what you will earn at maturity. The maths is simple, but three details matter: how days are counted, tax withholding, and whether interest is added to the balance.
Simple interest formula
Term deposit interest is usually principal × annual rate × days ÷ 365. For 100,000 at 40% for 32 days the gross interest is 100,000 × 0.40 × 32 ÷ 365 = about 3,507.
Tax withholding
Banks withhold tax on interest at the rate set by law and pay it to the state. The rate depends on the term and period, so ask your bank for the current figure. Net interest = gross × (1 − tax rate).
Why compound interest is powerful
With compound interest the interest you earn is added to the balance and earns interest itself. Leave 10,000 for 5 years at 30% a year with monthly compounding and you end up well above what simple interest would give. The gap grows with time.
Regular saving
Adding a small amount each month can beat a single deposit. Starting with 10,000 and adding 1,000 a month for 5 years means paying in 70,000, and at 30% a year the balance reaches roughly 180,000. Try your own numbers on the second tab.
Things to watch
- Check whether a quoted rate is annual or monthly.
- When inflation is high, the real return is much lower than the nominal rate.
- Breaking a deposit early can cost part or all of the interest.
Use the Deposit Interest Calculator to test quickly. Results are indicative and not investment advice.