How to Calculate Savings on a Fixed Deposit

by Mark Kennan

Fixed deposits, sometimes called term deposits, pay a guaranteed interest rate until the deposit reaches maturity. Investors benefit because of the security of the investment, as well as a higher interest rate than more liquid investments. The drawback is the inability to withdraw the money as you please, which benefits the bank because the bank can count on having your money until the maturity date. When calculating your interest on a fixed deposit, you need to know the term until maturity, the compounding periods, the interest rate and the amount deposited in the fixed deposit.

1. Divide the annual interest rate on the fixed deposit by the number of times the interest compounds each year. For example, if the interest rate on a fixed deposit equals 3.24 percent and compounds interest every other month, divide 0.0324 by 6 to find the rate equals 0.0054.

2. Calculate the periodic rate of your fixed deposit plus 1. For this example, add 0.0054 to 1 to get 1.0054.

3. Multiply the years in the term of the fixed deposit by the compounding periods per year to find the total number of compounding periods. In the example from the previous step, if a fixed deposit matures in three years, multiply 6 by 3 to get 18 compounding periods.

4. Raise the Step 2 result to the number of compounding periods in the term of the fixed deposit. On a calculator, you can enter the Step 2 result, press the exponent key, enter the number of compounding periods and press enter. In this example, raise 1.0054 to the 18th power to get 1.101792612.

5. Calculate the result minus 1 to find the total return on the fixed deposit. In this example, calculate 1.101792612 minus 1 to get 0.101792612.

6. Multiply the total return by the initial amount you put in the fixed deposit to calculate the interest on the fixed deposit. Concluding the example, if you put $1,590 in your fixed deposit, multiply $1,590 by 0.101792612 to find your savings interest equals $161.85.

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