How to Compute Profit from Time Deposit

in Time Deposit

Investing extra amount of money in time deposit is a safe and guaranteed way to make money out of your money. Time deposit or certificate of deposit is a bank product almost the same as savings account but the difference is that the money in time deposit is on holding period before you can withdraw it.

However, if you like to get your money before the maturity, you will be charged a fee. So it is very important that you have money left in your savings account for daily needs and emergency fund.

In order to know how much you will earn from investing in time deposit, you need to learn how to compute the net interest you receive for a certain amount of money invested in a defined period. Knowing how much is the interest gain will give you an idea how much money will you put in time deposit.

In my other articles, I mentioned that time deposit is one of the safest investment for your money because it is insured by the government up to P500,000.

To compute the total interest gain in time deposit, you can use the formula below:

Net Interest = [(principal x rate x days) / 365]*0.8

0.8 comes from 1 minus 20% withholding tax

For example: P2,630 = [(P1 million x 0.04 x 30) / 365 ]* 0.8.

In above equation, you can see that if you want to increase the interest gain in time deposit, you need to increase the principal amount and the days of your time deposit. The interest rate depends on the period of time deposit. The longer the holding period is, the higher the interest rate will be.

There are other kind of investments you can make that will give higher profit but they are risky and no assurance of profit. Time deposit has guarantee of profit and safety of the principal money you invested since it is insured by the bank and government.

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