Value Adding Formula: How to compute for my money after interest

Putting your money in a savings account makes your money grow over time and gives you additional funds for future use. Understanding the importance of growing your money is a step towards financial freedom, and knowing how to compute for it so you can plan your savings journey gives you an advantage.

First things first, the key ingredient that makes your money grow is what we call interest. Interest is basically money added to what you deposited into your savings account. Think of it this way -- it’s the bank’s way of thanking you for saving your money with them. This “thank you” varies per bank, and can be seen through the interest rates (IR) that these banks offer. Usually, traditional banks offer IRs from 0.01% to 1% but at CIMB Bank, you can earn IR of up to 4% and are presented per annum (PA). Per annum is basically just financial jargon which means per year, meaning 4% p.a. interest on your savings means you get 4% interest on your savings per year.

So you like high interest rates, but how do you actually compute for it?

You may have been taught in school before to compute your earnings annually using simple interest, but actually banks use compound interest to grow your funds. Meaning the interest you earned earns interest and your savings are compounded daily, so your money grows at a faster rate! The best part is even when you often move your money around, the growth rate won’t be affected.

So now that you know the terms concerning interest, let’s dive deeper and learn how to compute for your money after interest. When computing for the monthly interest earned of your UpSave or GSave account/s, refer to this guide:

1st step: Compute for the gross interest earned

IE = ( (P*t) / 360 ) * r

P = Average Daily Balance (ADB)
t = days of the month

r = rate in decimal form (for UpSave - 3% (0.03), for GSave - 3.1% (0.031))

IE = Gross Interest earned

2nd step: Compute for the net interest earned
S = IE - (IE * 20%)

20% = Withholding tax in decimal form (0.2)

S = Net Interest Earned

To make it easier for you, let’s give an example:

Juan has a linked GSave account and deposited PHP 10,000 last April to start his savings journey. Knowing that GSave gives him 3.1% base interest on his savings, he wants to know how much money he has earned after two months.

FIRST MONTH

IE = ( (P*t) / 360 ) * r

P = ADB (PHP 10,000)
t = days of the month (April - 30 days)

r = rate in decimal form (for GSave - 3.1% (0.031))

IE = Gross Interest earned

IE = ( (PHP 10,000*30) / 360 ) * 0.031
IE = PHP 25.83

S = IE - (IE * 20%)

S = PHP 25.83 - (PHP 25.83 * 0.2)

S = PHP 25.83 - PHP 5.17

S = PHP 20.66

SECOND MONTH

IE = ( (P*t) / 360 ) * r

P = ADB (PHP10,020.66)
t = days of the month (May - 31 days)

r = rate in decimal form (for GSave - 3.1% (0.031))

IE = Gross Interest earned

IE = ( (PHP10,020.66*31) / 360 ) * 0.031
IE = PHP 26.75

S = IE - (IE * 20%)

S = PHP 26.75 - (PHP 26.75 * 0.2)

S = PHP 26.75 - PHP 5.35

S = PHP 21.40

INTEREST EARNED FOR 2 MONTHS

S1 (First Month) + S2 (Second Month) = TS (Total Interest Earned)

PHP 20.66 (S1) + PHP 21.40 (S2) = PHP 42.06 (TS)

In conclusion, Juan’s savings after 2 months, even without him adding money to his account, goes up to PHP 10,042.06

However, if you qualify for CIMB’s 4% p.a. interest promo, you get more on your savings! Here’s an example.

Maria deposited PHP100,000 on her UpSave account and wants to know how much she has earned after one month. She has qualified for the 4% promo and is excited to know how much she has saved.

IE = ( (P*t) / 360 ) * r

P = ADB (PHP 100,000)
t = days of the month (September - 30 days)

r = rate in decimal form (4% (0.04))

IE = Gross Interest earned

IE = ( (PHP 100,000*30) / 360 ) * 0.04
IE = PHP 333.33

S = IE - (IE * 20%)

S = PHP 333.33 - (PHP 333.33 * 0.2)

S = PHP 333.33 - PHP 66.67

S = PHP 266.66

Additional interest payout from promo = PHP266.66 - PHP206.66 (net interest earned at an interest rate of 3.10%) = PHP60.00 (net of withholding tax)

So in conclusion, Maria has earned PHP 266.66 of interest for one month on her savings.

It might look small now, but you are actually getting 1600% more than other leading banks. Your earned interest on your savings can go a long way especially when you make it a habit to save. Gradually but surely your money grows and this brings you closer to financial freedom.