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Calculation of Saving Interest

 

 perhitungan bunga simpananWhy is it necessary to know savings interest? At the time we open savings account in a bank, we should know the method used by

the bank to calculate interest. This is because there are several methods used in calculating interest so as may create a difference in

the amount of savings interest that we receive. By knowing how the savings interest is calculated we can determine the minimum savings

balance we must keep to avoid a reduction in our balance caused by deduction of administrative costs and others.

 

Interest Calculation Method

Three main methods used for calculating the savings interest is the lowest balance, average balance and the balance of daily interest.

Some banks set 365 days in a year, but other banks may set 360 days in a year, to help understanding such interest calculation,

let’s pay attention to the following illustration of a savings account

For example, you open a savings account on June 1, with an initial deposit of IDR 1 million. Then you make deposits and withdrawal

of funds during the month of June as follows:

Date

Deposits

Withdrawal

Balance

1

1.000.000

 

1.000.000

5

5.000.000

 

6.000.000

6

 

500.000

5.500.000

10

2.500.000

 

8.000.000

20

 

1.000.000

7.000.000

25

10.000.000

 

17.000.000

30

 

2.000.000

15.000.000

 

The interest you receive is determined depending on the method used by the bank. Interest on savings account is based on 3 methods

as the example below.

 

Interest calculations using Lowest Balance Method

In this method, the interest within 1 month is calculated based on the lowest balance recorded on the bank in such month

Formula in this interest calculation is as follows:

 

 st

 

ST        =      Lowest Balance,

i           =      savings interest

t           =      Days Within one month

365     =      days in a year.

For example, the average interest rate is 5% per year with the lowest balance in June of IDR 1,000,000.00. then the interest calculation is:

Interest in June

= IDR 1 million x 5% x (30/365)

= IDR 4,109.59

 

Calculation of interest in Balance Average

In this method, the interest calculation in one month based on the balance average recorded in the bank within the month. The average balance is

based on the final balance of the savings account every day for a month, divided by the number of days in the month.

 

 st 2

 

SRH     =      Daily Average Balance

i           =      savings interest

t           =      days in a month 365 = days in a year.

For example, a savings account the interest rate applies as follows:

Balance under IDR 5 Million, Interest = 3% p.a

Balances above IDR 5 million, Interest = 5% p.a

 

Then the daily average balance for the above savings accounts is as follows:

[(IDR 1 million x 4 days) + (IDR 6 million x 1 day) + (IDR 5.5 million x 4 days) + (IDR 8 million x 10 days) + (IDR 7 million x 5 days) +

(IDR 17 million x 5 days) + (IDR 15 million x 1 day)] / 30 = IDR 8,233,333.00

 

With the average balance of above 5 million, then the range for savings interest is 5%, therefore the interest that we will receive is as follows:

Interest in June

= IDR 8,233,333.00 x 5% x (30/365)

= IDR 33,835.62

 

Interest calculations using the Daily Balance Method

In this method, interest is calculated based on daily balances. Savings accounts Interest during the relevant month is calculated by adding on an interest accumulation basis per day.

For example, the prevailing interest rate for savings accounts is as follows:

Balance under IDR 5 Million,                                                   Interest = 3% p.a

Balances above IDR 5 Million,                                                  Interest = 5% p.a

 

Then the method of interest calculation is

Day 1              :     IDR 1 Million x 3% x 1/365 = 82.19

Day 2              :     IDR 1 Million x 3% x 1/365 = 82.19

Day 3              :     IDR 1 Million x 3% x 1/365 = 82.19

Day 4              :     IDR 1 Million x 3% x 1/365 = 82.19

Day 5              :     IDR 6 Million x 3% x 1/365 = 821.92

Etc..

 

With the above calculation then the savings accounts interest in June is IDR 33,316.44

 

Important notes:

-       Before opening a savings account, ask the interest calculation method used by the bank

-       Savings account interest may be subject to change at any time and in certain cases the interest rate refers to the Floating rate

-       Some banks use a fixed rate for certain condition

-       Savings account interest is taxed.

 

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