The formula
gross = principal × rate × term · net = gross − tax withheld
Where it comes from
A term deposit pays a fixed rate for a fixed period. Two things separate the headline rate from what lands in your account: how often the interest is paid and compounded, and how much tax is withheld on it.
How to work it out by hand
- Apply the nominal rate over the term to get the gross interest
- If the interest is paid more than once, compound each payment
- Subtract the withholding tax
- Divide the net interest by the principal for the real return
What is worth knowing
Two traps. The first is comparing a nominal rate against an effective one: a deposit paying monthly at 3% nominal yields slightly more than one paying 3% at maturity, so always compare effective rates. The second is inflation, which decides whether any of this is a gain at all. At 3% gross, 19% tax and 3% inflation, you end the year with less purchasing power than you started — a nominal profit and a real loss. Term deposits are for money you must not risk and will need on a known date, not for growth. Check the early withdrawal penalty before you commit, because that is what you are really buying.