Interest formula – How to calculate interest

The method of savings interest formula depending on the form of deposit will be different for each bank. Normal savings interest rates will be offered by the banks, in compliance with the regulations of the State Bank.

interest-formula

People who send money to savings will often pay special attention to the interest rate, and have the same question, “How is the interest rate calculated?”. Find out how to calculate the bank interest rate for savings with Fastloans.PH!

What is savings interest rate? Should or should not deposit savings or idle money in the bank?

Interest formula for demand savings

There are many different types of savings, each with a way to calculate the interest rate for savings. You need to determine the type of deposit service to have the most accurate way to calculate the bank savings interest rate.

First, demand savings deposit. This is a form of savings with no term attached. The sender can withdraw cash at any time and without prior notice to the bank.

Accordingly, the interest formula of demand savings interest rate is calculated by the following formula:

Interest = Deposit amount x interest rate (% / year) x number of days actually deposited / 360

For example:

Customers who save PHP 50,000 without term deposit at the bank have an interest rate of 1.5% / year. The time when the Client withdraws the deposit amount is 6 months. The method of calculating the bank interest rate for savings in this case is as follows:

Interest = Deposit x 1.5% / 360 x 180 (6 months = 30 x 6 = 180 days)

= 50,000 x 1.5% / 360 x 180 = 375 PHP

Interest formula for term savings

Next is the interest formula of time deposit. With this type of service, the deposit amount will be set a term with the committed interest rate. The Bank will offer many different terms for customers to easily choose according to their needs (weekly, monthly, quarterly, year, …).

Accordingly, the way to calculate the bank savings interest rate for this case is as follows:

Interest = Deposit amount x interest rate (% year) x number of days / 360.

Or:

Interest = Deposit amount x interest rate (% year) / 12 x number of months of deposit.

For example:

Customers saving PHP 50,000 with 1 year term at the bank have an interest rate of 3% / year. At 1 year period, you can withdraw the deposited amount. The method of calculating the bank interest for the savings in this case is as follows:

Interest = Deposit * 3%

= 50,000 x 3% = PHP 1,500

If you sign up for a 6-month term deposit package, we have the interest:

Interest = Deposit x 3% / 360 x 180

= 50,000 x 3% / 360 x 180 = 750 PHP

Advantages of term savings account

  • Term savings will receive a higher interest rate than demand savings.
  • If you withdraw on time committed, you will receive the full interest rate you choose.
  • Because of its high value, the vast majority of people choose this method to save money.

See also: What is compound interest?

Frequently asked questions when opening a bank term savings account

I deposit PHP 50,000 with a term of 1 year, interest rate 7% / year, but after 2 years from the maturity date I have not withdrawn. How will interest be calculated?

You have deposited a savings in the bank, but because you need to use it urgently and you want to withdraw all the money before the committed period when opening a savings book. So when the settlement is earlier than the commitment period, how will interest be calculated?

The article is from Fastloans.PH website: https://fastloans.ph/

Fastloans.PH - Financial advisory website & online loan product comparison in Philippines

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