How to compute the interest rates
For many years, I didn’t know how banks compute interest rates. Although I have been saving money in the bank for so many years, it is only this year that I learned how to compute my interest rates. Surprisingly, it doesn’t take a rocket scientist to figure it out. The formula is this:
(Amount) x (Interest rates in decimal form) x (holding period) x 0.8
Let’s say you have P50,000 in your time deposit account, earning 5% interest and with a holding period of 30 days. Just substitute the values.
(50,000) x (0.05) x (30) x 0.8
——————————- = P166.67
On the first month, your money will earn P166.67, which will bring your balance to P50,166.67. Just use the new balance if you want to compute your earnings for the second month.
(50,166.67) x (0.05) x (30) x 0.8
——————————— = P167.22