We place deposits in order to receive additional income. That is why we look for high rates on deposits and the best offers on the market, because the size of the interest rate on the deposit directly affects the size of our income, so it is often a decisive factor when choosing a deposit program. In this article, we will consider exactly how the interest on the deposit is calculated, how much tax is withheld from it, how to calculate the profit from the deposit that you will receive, and how the deposit calculator will help with this.
The interest rate is set in annual terms
To begin with, it is important to clearly understand that the interest rate on deposits is indicated not for 1 month or for the term of placing the deposit, but in annual percentages for 365 calendar days of the year, regardless of the term of placing the deposit. So, if you place a deposit at 12% for 6 months, then your total income on the deposit for these 6 months will not be 12% of the deposit amount, but 12% p.a., which is approximately 6% of the amount. In order for the interest paid to meet your expectations, you should use the deposit calculator on the website of the selected bank to clearly calculate the profit from the deposit that you will receive as a result, and not have any surprises later.
The level of interest rates depends on the term of the deposit, the order of interest payment and the possibility of partial withdrawal or early termination of the deposit. Obviously, if there is a possibility that the depositor will withdraw the deposit or part of it early, then in such cases the bank sets a lower yield. If we look at the order of interest payment, then the highest rate will be for a deposit with payment at the end of the term. However, the situation with the term of the deposit is ambiguous. Traditionally, the longer the term of the deposit, i.e. the term of use of your money by the bank, the higher the rate will be. However, in turbulent conditions, when it is difficult to predict the economic situation and the value of money in the long term, banks prefer to attract short-term deposits in order to have greater flexibility, and therefore offer them the most attractive rates.
The profit from the deposit depends on the number of days in the month
Interest on the deposit is calculated daily during the period of validity of the deposit and the availability of funds on deposit. The only exception is the first and last day of the deposit – these are two days on which interest is not accrued. Similarly, in the case of replenishment of the deposit, interest on the replenishment amount will begin to accrue on the next calendar day.
Please note that if you placed funds on a deposit or replenished it already after the end of the bank's operating hours, for example, on Friday at 19:00, then interest on this amount will start accruing to you only from Tuesday.
The procedure for calculating interest and its subsequent payment can be found on the bank's website in the Public offer for private individuals section.
How to calculate profit from a deposit.
Due to the fact that interest is calculated for each day, and a month can have 30, 31, 28 or 29 days, the amount of interest on the deposit will be different each month.
Let's consider an example. On February 1, you placed a deposit of UAH 100,000 at 12% p.a.
The interest rate for 1 calendar day is 12% / 365 days = 0.0329% p.a.
In February, you will receive funds from the day after the deposit is placed, that is, for February 2-28, which is 27 days. So, on March 1, you will receive interest in the amount of 100000*27*0.0329%=887.67 UAH.
In March, you will receive interest for the 31st calendar day of March, and you will receive: 100000*31*0.0329%=1019.18 UAH.
As you can see, the difference depending on the number of days in the month is UAH 131.51.
In this case, we took the average deposit amount and average interest rates, but if we take already high rates, for example, 18% p.a. and a deposit amount of UAH 200,000, then the difference between February and March will be three times larger - UAH 394.52.
We can conclude that the amount of interest paid will fluctuate depending on the month, and this is correct.
Similarly, you can calculate the profit from the deposit for the entire term of the deposit - just instead of the number of days in a month, use the number of days of the deposit excluding the first and last day.
The deposit calculator will help you calculate the deposit income
The deposit calculator will help calculate the profit from the deposit. A deposit calculator is a must-have on every bank's website, and you can also find many handy tools on various banking and finance websites.
In order to determine your income from a deposit, you need to enter the amount and term of the deposit into the deposit calculator, choose the desired deposit program, and then the deposit calculator will do everything by itself. If the amount of interest on a deposit with monthly interest payments can be quickly calculated yourself, then calculating the profit on a deposit with interest capitalization is much easier with the help of a calculator. And by the way, sometimes not very high interest on a capitalization deposit can actually bring the highest amount of income. So be sure to use the deposit calculator on bank websites to conveniently compare different bank deposits and confidently choose the best one for yourself.
How is the income from the deposit taxed
The income that you receive from the deposit is one of the types of income of individuals. So, as well as, for example, from wages, tax and military levy are withheld, which currently amount to 18% and 1.5%, respectively. The bank independently pays these taxes for the depositor, who receives his net profit after deduction of taxes and fees. So, if you want to calculate the profit from the deposit in cash, then you need to subtract 19.5% from the accrued amount. The deposit calculator on the banks' websites allows not only to calculate the profit from the deposit, not only the amount of taxes paid and the profit from the deposit in cash, but also shows the actual amount of interest after taxes.
Deposit income began to be taxed in 2014 to support the state budget, and the current tax rate of 18% has been in effect since 2016. No matter how high the deposit rates are, the tax significantly reduces the income received. Therefore, the abolition of this tax has been discussed for more than a year, and finally, in February 2023, a corresponding bill was registered in the Verkhovna Rada, which provides for the abolition of the tax for deposits of up to UAH 600,000. Currently, this bill is still being processed by the Committee.
