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.
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?
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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
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.
Interest = Deposit amount x interest rate (% year) / 12 x number of months of deposit.
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?
Answers: In the above case, the interest will continue to accrue and be calculated according to the current savings interest rate. It is understood that the first year interest will be calculated as 3%, the following years it may increase or decrease.
Thus, we have the following method of calculating interest:
Interest in the first year:
Interest = 50,000 x 3% = PHP 1,500
Interest rate for the second year, interest rate increases by 1%. By the due date of the second year, the interest you will earn is:
Interest = (50,000 + 1,500) x 4% = PHP 2,060
So after 2 years of savings, the amount of PHP 50,000 received the interest amount is 3,560 PHP
Or with the above assumption, but the 2nd year is only 6 months and you have withdrawn. At this time, the amount of savings will be charged at the demand interest rate. The savings interest rate at this time is 0.5% / year, the 2nd year interest is calculated:
Interest = (50,000 + 1,500) x 0.5% / 360 * 180 = 128.75 PHP
So after 1.5 years of savings, the amount of 50 PHP received the interest is 1,628.75 PHP
Thus, the principal and interest will be accumulated and calculated at the new interest rate.
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 settlement is sooner than the committed term, the interest amount will be calculated according to the demand interest rate. The number of paid interest days starts from the first day of the new term until the date you close your savings book. The demand interest rate is usually about 1% / year.
Reference: Philippines Interest Rate 1985-2020 Data