How deposit interest is calculated
gross interest = P × r × days / 365 net interest = gross interest × (1 − tax rate)
P is the amount deposited, r the gross annual interest rate and days the length of the term. A deposit pays simple interest for its term: the rate is applied once, to the original amount, and the interest is paid at maturity. Many banks count actual days over a 365-day year, which is the convention used here.
If tax is withheld at source, the bank pays out the gross interest minus that percentage. Where interest is taxed through your annual tax return instead, leave the tax rate at 0 to see the gross figure, or enter your own rate.
Interest only compounds when you roll the deposit over: at maturity the principal and the net interest are reinvested for another term, so the next term earns interest on the interest. The roll-over projection repeats the same term at the same rate for about a year, and the effective annual yield, (1 + net rate per term)^(365 / days) − 1, sums up that effect in one figure.
Worked example
Depositing $10,000 at 4% a year for 365 days earns 10,000 × 0.04 × 365 / 365 = $400.00 in gross interest. With no tax withheld you collect $10,400.00 at maturity — about $1.10 a day.
To see what rolling over adds, put the same $10,000 in a 90-day deposit at the same rate and keep it going for 4 terms in a row (360 days): you end with $10,400.40. Without reinvesting the interest, the same 360 days would earn $394.52, so reinvesting adds $5.88.
How to read the results
Net interest is what you actually receive for the term after tax, and the amount at maturity adds it to your deposit. Earnings per day divide the net interest by the number of days, which makes terms of different length easy to compare.
The net annual rate is the gross rate after tax, without compounding. The yield if renewed shows what the same deposit would return over a year if you could keep rolling it over at the same rate, so you can compare a short term with a one-year deposit on equal terms.
Shorter terms let you reinvest sooner, but different terms rarely pay the same rate, and the rate on renewal may be higher or lower. Compare the actual offers for each term before deciding, and set the net return against inflation.
Assumptions and limits
- Interest is simple within each term and calculated on a 365-day year; some banks use a 360-day year or pay interest monthly.
- The roll-over projection keeps the same rate for every renewal; real renewal rates change with the market.
- Tax uses the single rate you enter. Withholding rules, allowances and rates differ by country, term and currency.
- Deposit insurance limits, early-withdrawal penalties and fees are not considered.
- Results are estimates, not a bank offer.
Frequently asked questions
How do I calculate interest on a fixed deposit?
Multiply the amount by the annual rate and by the number of days, then divide by 365: interest = P × r × days / 365. For example, 10,000 at 4% for 90 days earns 10,000 × 0.04 × 90 / 365 = 98.63 before tax.
How much interest does 10,000 earn in a year?
At a 4% annual rate, 10,000 earns 400 in a year before tax; at 5% it earns 500. Any tax withheld reduces that: with 15% withholding, 400 becomes 340.
Is deposit interest simple or compound?
Within one term it is simple: interest is paid once, at maturity, on the original amount. It compounds only if you roll the principal and interest into a new term, which is why renewing a short deposit several times a year earns slightly more than one deposit for the same period at the same rate.
What is the difference between the interest rate and the APY?
The interest rate is the simple annual rate used to work out each term's interest. The APY (annual percentage yield) includes the effect of compounding — for a deposit, of reinvesting the interest — so it is equal to or slightly higher than the rate. A 4% rate on a 90-day deposit renewed all year gives an APY of about 4.06%.