Unlike Savings Deposit, Time Deposit yields more interest
than the former. Time Deposit is an interest bearing deposit account that
has specified maturity date. Can I
withdraw my Time Deposit even not yet matured? The answer is YES but a penalty
will be imposed on interest earned.
So how banks compute the interest rate of your Time Deposit.
Formula:
I = P x r x t
where I = Interest earn
P = Principal
r = rate of the deposit
t = time/period divided by year or 365 days
Lets say, the bank says your money will earn 3% interest for
placement period of 60days. Then you placed P 100,000.00 for that.
I = P x r x t
I = P 100,000.00 x 3% x 60days / 365 days
I = P 3,000 x 60days/365days
I = P 493.15 ---
Gross Interest Income, a 20% Withholding
Tax will be deducted from it.
I = P 394.52 --- Net Interest Income
This formula also applies for Savings Deposit. There are instances that banks offer ZERO interest on Time Deposit if your placement period is above 5 years.