Many people look at interest rate tables at the bank and feel uncertain about how much they'll actually earn. The logic is simple: three numbers multiplied together. Once you understand these, you can calculate it yourself.
The Basic Formula: Principal x Rate x Days
The core formula is: Interest = Principal x Annual Rate x Days / 365. The annual rate is the yearly return percentage. For example, if you deposit 100,000 with a 1-year term at 1.5% annual rate, the interest is 100,000 x 1.5% x 1 = 1,500. Note: 1.5% is annual, not monthly. For a 6-month deposit, use 180 days, so interest is roughly 750. Banks typically calculate by actual days, not simple division by 12.
Converting Annual Rate to Daily Rate
Some ask why not use 360 days. Banks sometimes use 360 internally, but customer settlements usually use actual days divided by 365. This means even one day of deposit earns interest. Daily rate = Annual rate / 365. For 1.5% annual, daily rate is about 0.00411%. Daily calculation ensures fairness: you earn exactly for the days you deposit.
Current, Fixed-Term, and Installment Deposits
Current deposit is flexible but has very low rates, usually under 0.3%. Fixed-term (lump-sum) deposit is for a large sum you won't touch, with the highest rates. Installment deposit is for regular monthly savings, like saving after each paycheck, with rates between current and fixed-term. Choose current for flexibility, fixed-term for a lump sum, installment for forced savings. Don't confuse current with fixed-term, the rates differ significantly.
What Happens with Early Withdrawal
This is a big trap. Withdrawing a fixed deposit before maturity usually means interest is calculated at the current deposit rate on the withdrawal date. For example, if you deposit for 1 year at 1.5% but withdraw after 3 months, the 100,000 earns interest at around 0.2% (current rate), not 1.5%. You'd get only a few dozen instead of over a thousand. Unless it's urgent, avoid early withdrawal. If necessary, consider partial withdrawal to keep the rest at the fixed rate.
Understanding interest calculation tells you how fast your money grows. Before depositing, do a quick calculation to know what to expect.