At the bank counter, most people only look at the "interest rate" number but cannot calculate what the maturity interest will actually be. The same money earns several times more in a time deposit than in a current account; and within time deposits, lump-sum, monthly-deposit, and early-withdrawal plans each calculate interest differently. Today we break down deposit interest completely so you can run the numbers yourself before locking in your money.
Current Account Interest: Daily Accrual, Small but Simple
A current (demand) account lets you deposit and withdraw freely, with daily interest accrual. Interest = principal × daily rate × days held, where the daily rate = annual rate ÷ 360 (banks commonly use a 360-day basis). Current rates are very low, usually around 0.1%-0.2% per year.
Example: Xiao Zhou keeps 50,000 yuan in a current account for 180 days at 0.15% annual. Daily rate = 0.15% ÷ 360 ≈ 0.000417%. Interest = 50,000 × 0.000417% × 180 ≈ 37.5 yuan. Half a year of current-account interest on 50,000 yuan is only a few dozen yuan — compare that to a time deposit below and the gap becomes obvious.
Current-account interest is settled quarterly (March 21, June 21, September 21, December 21), after which it is added to your principal and earns further interest. Money you may need any day belongs in a current account; but "money that just sits there" in a current account is a waste. To compute current interest for any principal and holding period, plug the numbers into our percentage calculator using: principal × annual rate ÷ 360 × days.
| Deposit Type | Reference Annual Rate | Interest on 100k for 1 Year | Accrual Method |
|---|---|---|---|
| Current account | 0.15% | about 150 yuan | Daily accrual, quarterly settlement |
| 1-year time deposit | 1.45% | about 1,450 yuan | Paid in full at maturity |
| 3-year time deposit | 1.90% | about 5,700 yuan (simple total) | Paid in full at maturity |
| 3-year large deposit certificate | about 2.1% | about 6,300 yuan (simple total) | Has a threshold, transferable |
The same 100,000 yuan earns about 150 yuan in a year in a current account but about 5,700 yuan in a 3-year time deposit — a gap of nearly 40 times. That is why idle money earns dramatically different returns depending on where you park it.
Time Deposit Interest: Simple Interest, Lump-Sum Is the Norm
The most common time deposit, lump-sum (principal and interest at maturity), uses simple interest: interest = principal × annual rate × years. Deposit 30,000 yuan for 2 years at 1.6%: interest = 30,000 × 1.6% × 2 = 960 yuan, and you receive 30,960 yuan at maturity. Note that time deposits do not compound — even a 3-year deposit earns principal × rate × 3, not year-over-year compounding.
This is the core difference between bank deposits and wealth-management products: deposits pay simple interest; funds and structured products compound. On 100,000 yuan at 3% annual, simple interest over 3 years gives 9,000 yuan; compounding (reinvesting interest each year) gives about 10,927 yuan after 3 years — 927 yuan more. To feel the compounding gap, enter principal, annual rate, and years into our compound interest calculator and compare both curves side by side.
Shorter terms pay lower rates; longer terms pay higher but lock in your money. One-, two-, three-, and five-year rates generally rise with term, though three- and five-year rates sometimes invert (3-year higher than 5-year) because banks avoid discouraging ultra-long deposits. Before depositing, check the current posted rates and use a calculator to work out the exact maturity value — do not just chase a "high rate" without considering how long your money is locked away.
Early Withdrawal and Three Traps in Interest Math
The most painful part of time deposits is early withdrawal. If you withdraw a lump-sum deposit before maturity, the entire balance reverts to the current-account rate — all the time-deposit interest you expected is voided. Example: Xiao Zhao deposits 50,000 yuan for 3 years at 1.9%. After 2.5 years he needs the money and withdraws: he expected about 50,000 × 1.9% × 3 ≈ 2,850 yuan, but actually earns only about 187 yuan at the 0.15% current rate over 2.5 years — losing more than 2,600 yuan.
The second trap is automatic rollover. When a time deposit matures, banks automatically renew it at the then-posting rate for the same term. If rates are falling, auto-rollover locks you into a lower rate; if you are away on the maturity date, you may also miss the chance to move to a higher-rate product. Check the rate before maturity and decide whether to renew or withdraw.
The third trap is the rate gap between monthly-deposit and lump-sum plans. A monthly-deposit plan (a fixed amount saved each month, withdrawn at maturity) usually pays 0.2-0.4 percentage points less than a lump-sum deposit of the same term. Saving 2,000 yuan a month for a year earns roughly 2,000 × 12 × 1.2% ÷ 2 ≈ 144 yuan in interest; accumulating the lump sum instead and placing it in a lump-sum deposit earns more. To compare annualized returns across plans, use our CAGR calculator to normalize multi-installment returns onto one scale.
FAQ
Q1: Does a current account earn interest every single day?
Yes. Current-account interest accrues daily and is settled quarterly (on the 21st of March, June, September, and December), after which it is added to your principal. The longer you hold and the larger the balance, the more current interest you earn — but at these low rates the absolute amounts are usually tiny.
Q2: Can I collect time-deposit interest before maturity?
No. A lump-sum time deposit only pays its full interest at maturity; early withdrawal recalculates everything at the current-account rate. Some banks offer "tiered-rate" products where early withdrawal keeps the rate for the completed term, but regulators have sharply reduced these, so read the terms before depositing.
Q3: Do I pay tax on deposit interest?
Currently, interest on personal bank deposits is tax-free, and the full principal plus interest is yours at maturity. This is a hidden advantage of deposits over wealth products, some of which trigger value-added or income tax depending on the product type.
Q4: How big is the simple-versus-compound gap really?
On 100,000 yuan at 3% annual for 10 years: simple interest = 100,000 × 3% × 10 = 30,000 yuan; compound value = 100,000 × (1.03)^10 ≈ 134,392 yuan, or about 34,392 yuan of interest — 4,392 yuan more. The longer the term and the higher the rate, the larger the compounding advantage, which is exactly why long-term savers insist on compounding.
Q5: Is a 3-year or 5-year term better?
It depends on whether rates are inverted. If the 5-year rate is not lower than the 3-year and you are certain the money will sit untouched for 5 years, choose 5 years; if the rates are similar or inverted (3-year higher), choose 3 years for better liquidity. Check the latest posted rates and run the maturity math before deciding.