Enter the principal amount deposited and the annual interest rate, as well as the time the money is deposited for into the calculator to determine the interest earned.
Time Deposit Interest Formula
The following formula is used to calculate the interest earned on a time deposit.
I = P * r * t
Variables:
- I is the interest earned ($)
- P is the principal amount deposited ($)
- r is the annual interest rate (decimal)
- t is the time the money is deposited for (years)
To calculate the interest earned on a time deposit, multiply the principal amount deposited by the annual interest rate, then multiply the result by the time the money is deposited for. The result is the interest earned on the time deposit.
What is a Time Deposit Interest?
A Time Deposit Interest is the return or profit that a depositor earns from placing their money in a time deposit account in a bank or financial institution. The interest rate is usually higher than a regular savings account because the money is locked in for a specific period of time (term) and cannot be withdrawn until the term ends. The rate of interest is often fixed and depends on the term length, with longer terms generally offering higher rates.
How to Calculate Time Deposit Interest?
The following steps outline how to calculate the Time Deposit Interest using the formula: I = P * r * t.
- First, determine the principal amount deposited ($), denoted as P.
- Next, determine the annual interest rate (decimal), denoted as r.
- Next, determine the time the money is deposited for (years), denoted as t.
- Finally, calculate the Time Deposit Interest using the formula I = P * r * t.
- After inserting the variables and calculating the result, check your answer with a calculator.
Example Problem:
Use the following variables as an example problem to test your knowledge:
Principal amount deposited ($) = 5000
Annual interest rate (decimal) = 0.05
Time the money is deposited for (years) = 3
