How to compute your Time Deposit income

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We recently received an email from one of our readers asking how to determine the interest earnings on his time deposit account. In response, we explain below how exactly it’s being computed.

Interest on a Peso Time Deposit account

Let’s assume we opened a P100,000 time deposit account that earns 2.0% per annum. We let it stay for 35 days. Considering the 20% withholding tax charged to peso time deposits, the interest income on the account is:

  • P100,000 * 2.0% * (35 / 365 days) * 0.80 = P153.42

Most people usually think that when they are quoted an interest rate (2.0% in this case), they will get that interest no matter how long the holding period is. This is wrong. That quoted rate is an annual rate and you only earn it if you let the bank hold your money for one year.

In our example above, your principal of P100,000 would earn only the share of 35/365 of the 2.0% per annum rate, representing 35 days out of 365 days in a year that the money is with the bank. (The convention is usually 365 days but some banks may use 360 days in the computation.)

You also need to consider the 20% withholding tax charged on interest income from time deposits. This is represented by the “0.80” in our formula above, which means, we are getting 80% of the total interest only, because we deducted the 20% withholding tax.

Thus, for a P100,000 money placed for 35 days in a time deposit (TD) paying 2.0% interest per annum, the net interest income is  P153.42. A bit small, indeed, compared to the principal placed. But then again, time deposit accounts are covered by the Philippine Deposit Insurance Corporation, which means they are virtually safe, so in effect you don’t get much return because there’s not much risk associated with a TD account.

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PreTermination of Time Deposit

Do note that most banks do not allow pre-termination of your time deposit. It is possible that you will incur a loss if you redeem or close the account prior to the set maturity date.

That’s because the Documentary Stamp Tax (DST), which the bank usually shoulders if the account is held until maturity, will now be passed on to you. Most of the time, this DST is more than the interest you earned, which means your principal can even be reduced. We thus highly encourage you to wait for the time deposit to mature rather than preterminating it.

Related Reading: Banking, Insurance and Credit Cards discussion at the PMT Forum

  • Justine Emmanuel Relano

    Mas magandang mag join ka nalang dito sa popular communty, Kung nagbigay ka dito ang pwede mo naman hingiin sa community is 30% na binigay mo kasama rin ung binigay mo, so meaning 30% monthly ang pwede mo hingiin :) Kesa naman mag Time Deposit ka napakaliit!

    Sa Community na ito ang goal dito ay sirain ang financial system na nakasanayan na tulad sa bangko na napakaliit ng binibigay sa mga depositors!

    Let me give a example kung paano pinapatakbo/kumikita ang bank using thin Air. Sabihin na natin na si Mr. Janson ang Bangko. at si Mike at Angelica ang Depsoitors. Ngayon Si Mike ay may nagustuhan na bike worth 2000 Pesos at ang bike shop na iyon ay kay Angelica. Ngayon si Mike ay may 200 pesos lang sa kanyang bulsa at sinabi nya kay angelica na pauna nya muna ung 200 pesos wag nya lang ibenta sa iba at nag OO naman si Angelica. At Si Angelica ay pupunta sya sa Bank para mag deposit ng 200 pesos para sa savings nya. Ngayon naman si Mike ay nag-iisip kung saan sya kukuha ng 1,800 pesos para mabili at makuha na nya ung bike na gustong gusto nya at ang naiisip nya ay pupunta sya kay Mr. Janson “the bank” at hihiram sya ng pera na 1,800 pesos pero sabi ni Mr. Janson ay 200 pesos lang muna ang pwede nya ipahiram then after 3 days balik ka dito. Ok so nakahiram si Mike ng 200 pesos at agad naman nya na ibinayad kay Angelica. at si Angelica deniposit ulit nya sa banko nya ung 200 pesos then after 3 days ulit pumunta ulit si Mike sa bangko at binigyan nanaman sya ni Mr. Janson ng 200 pesos. Hanggang mabuo nya ang 1,800 pesos. The same Scenario lang ang mangyayari. So ngayon nabili na ni Mike ang pinaka-gugusto nyang bike na worth 2000 pesos pero naka utang sya kay Mr. Janson “the Bank” at si Angelica naman ay kumita na ng 2000 Pesos na halaga ng bike. So sino ang tuwang tuwa ngayon syempre lahat sila kasi nabili ni Mike ung gusto nya, si Angelica naman nabenta nya ung tinda nyang bike at si Mr Janson “the Bank”. Pero sa katunayan si Mr. Janson ang pinaka natuwa kasi kumita sya ng pera using Thin Air! So meaning kumita sya ng walang nilabas na pera! Dahil nagkautang si Mike ng 1,800 pesos plus interest pa sa kanya kung kailan nya babayaran. So makikita nyu na ang bangko ang lalong yumayaman hindi ang depositors dahil ginagamit ang pera nyu para sa ikakayaman pa nila lalo!

    Kaya sa mga gustong masubukan ang “Power Of Giving” Kung tumulong ka, ikaw ay tutulungan rin. Dito sa Financial Community ikaw makaka-hingi ng 30% monthly sa binigay mong pera malayong malayo sa Time Deposit.

    Ok I will give an Example. Let say you provide help an amount 100,000 pesos in 1 month you can get help an amount of 130,000 pesos. Full principal back. Mahirap man paniwalaan pero kung d mo susubukan hindi mo malalaman. BUT THIS IS NOT A HYIP!

    This is a community of ordinary people, selflessly helping each other, a kind of the Global Fund of mutual aid. This is the first sprout of something new in the modern soulless and ruthless world of greed and hard cash. The goal here is not the money. The goal is to destroy the world’s unjust financial system.

    Minimum Provide Help: 200 pesos

    Maximum Provide Help: 400,000 pesos

    If you want to join

    Register your free account here: http://bit.ly/FillupFormHere

    Join our group here: http://bit.ly/joinourfacebookgrouphere

    Add me in Facebook: https://www.facebook.com/justinerelano

    Message/Call me here: +639275727706

  • Arthur Alcantara

    Traffic Monsoon Revenue Sharing Company mas malaki ang interest na perang iinvest nyo dito halimbawa $1000.00 magiging $1100.00 in just 55 days (mature date) just pm or call me @ +966506778406 for more details