User manual of the interest on bank deposits' simulator

The interest on bank deposits’ simulator allows you to calculate the return on capital investments in deposits, for given periods of time.

It allows you to calculate the amount of interest received in a simple or compound interest-rate regime and the effective interest rate of the application.

This simulator does not allow you to work with different interest rates over the application period.

 

What data do you have to enter in the simulator?

To obtain a simulation, you must fill in the following fields:

  • ‘Initial capital in euros’ – corresponding to the amount applied in the deposit;

  • ‘Term’ – corresponds to the deposit period, expressed in days, months or years;

  • ‘Gross annual interest rate’ – expresses the return on the deposit for the period of one year;

  • ‘Interest tax rate’ – corresponds to the tax rate applicable to the interest on deposits (28% – natural persons with tax residence in mainland Portugal and Madeira; 22.4% – natural persons with tax residence in the Azores; 25% – companies with tax residence in mainland Portugal and Madeira; 20% – companies with tax residence in the Azores);

  • ‘Interest payment frequency’ – corresponds to the number of times the interest is paid within one year (for example: 1, if annual payment; 4, if quarterly payment; 5, if interest payment occurs every 72 days; 12, if monthly payment).

     

What do the results mean?

Net annual nominal interest rate

The simulation allows you to obtain the net annual nominal interest rate of the deposit. This is the rate used to calculate the interest received.

The net annual nominal interest rate corresponds to the gross annual nominal interest rate minus the tax rate: Net annual nominal interest rate = (1 – tax rate) x gross annual nominal interest rate

 

Simple or compound interest regime

The simulation shows the amount of interest received in:

  • Simple interest regime

    • This means that there is no capitalisation of accrued interest, i.e. accrued interest is not incorporated in the capital and, therefore, there is no interest on interest. This type of application may pay interest several times; however, since there is no capitalisation, accrued interest is credited periodically to a current account;

    • The annual effective interest rate is necessarily equal to the annual nominal interest rate.

  • Compound interest regime

    • This means that interest accrued periodically is added to the capital of the deposit, adding to the interest of the next capitalisation period. As the capital grows, the total amount of interest received is higher than interest earned on a simple interest regime (in which case the capital never changes);

    • The annual effective interest rate, which includes the effect of interest capitalisation, is higher than the annual nominal interest rate;

    • The effective interest rate is all the greater the greater the number of interest capitalisations.

In both cases, simple interest or compound interest, the interest counting period is given by 1/k, 12/k or 360/k, depending if the deposit is expressed in years, months or days, with k being equal to the number of times the deposit pays interest within the period of one year.

The effective interest rates calculated by the simulator always refer to the period of one year, regardless of whether the term of the deposit is less than or greater than one year.

Examples

1) Deposit with a single interest payment at the end of the term

Deposit of 1000 euros, for a period of three months, with payment of interest at the end of the term: gross annual nominal interest rate = 4.70% (with a tax rate of 28%)

Since there is only one interest payment, the results are the same in simple interest or compound interest:

  • The amount of interest at maturity corresponds to €8.46;

  • The net annual effective interest rate, equal to the net annual nominal interest rate, is 3.384%.

 

2) Deposit with interest paid quarterly

Deposit of 1000 euros, for nine months, with interest paid quarterly: gross annual nominal interest rate = 4.75% (with tax rate of 28%)

If the deposit is made on a simple interest regime (without capitalisation):

  • the total interest received over the term is €25.65;

  • the net annual effective interest rate, equal to the net annual nominal interest rate, is 3.420%.

In compound interest regime, with interest capitalisation every 90 days (four times a year):

  • the total interest received over the term is €25.87;

  • the net annual effective interest rate is 3.464%.

 

3) Deposit with a non-multiple term of the interest payment period

Deposit of 1000 euros, for 225 days, with interest paid every 72 days: gross annual nominal interest rate = 4.70% (with a tax rate of 28%)

If the deposit is made with a simple interest regime (without capitalisation):

  • the total interest received up to the end of the term is €21.15;

  • the net annual effective interest rate, equal to the net annual nominal interest rate, is 3.384%.

Under compound interest regime, with interest capitalisation every 72 days (five times a year), there are three full capitalisations, covering 216 days, plus interest for the remaining 9 days:

  • the total interest received up to the end of the term is €21.31;

  • the net annual effective interest rate is 3.431%.