Term Deposit Calculator

What is a Term Deposit?

A term deposit, also known as a fixed deposit or time deposit, is a financial instrument offered by banks and other financial institutions. It allows you to invest a fixed amount of money for a specific period at a predetermined interest rate. In return for agreeing to leave your money untouched for the agreed term, you typically receive a higher interest rate than you would with a standard savings account.

The Term Deposit Interest Formula

The formula for calculating term deposit interest is:

\[A = P(1 + \frac{r}{n})^{nt}\]

Where:

• \(A\) = Final amount
• \(P\) = Principal amount (initial deposit)
• \(r\) = Annual interest rate (in decimal form)
• \(n\) = Number of times interest is compounded per year
• \(t\) = Number of years

Step-by-Step Term Deposit Interest Calculation

1. Identify the principal amount (P), annual interest rate (r), compounding frequency (n), and term (t).
2. Convert the annual interest rate to decimal form (divide by 100).
3. Divide the annual rate by the compounding frequency to get the periodic rate.
4. Multiply the compounding frequency by the number of years to get the total number of compounding periods.
5. Plug these values into the term deposit interest formula.
6. Calculate the final amount (A).
7. Subtract the principal from the final amount to get the interest earned.

Example Calculation

Let's calculate the term deposit interest for a principal of $10,000, an annual interest rate of 2.5%, compounded monthly, over 2 years:

1. \(P = \$10,000\), \(r = 2.5\% = 0.025\), \(n = 12\) (monthly compounding), \(t = 2\) years
2. Periodic rate = \(0.025 \div 12 = 0.002083\)
3. Total compounding periods = \(12 \times 2 = 24\)
4. \(A = 10000(1 + 0.002083)^{24} = \$10,506.33\)
5. Interest earned = \$10,506.33 - \$10,000 = \$506.33

Visual Representation

The green portion represents the principal ($10,000), and the blue portion represents the term deposit interest earned ($506.33).