How to Make Money by investing in Nigerian Fixed Deposits.

What is a Fixed Deposit: A fixed deposit is an investment with a specific amount of invested at an agreed interest rate and tenor. All banks in Nigeria offer this investment opportunity, however the rates you get when you invest in one bank may differ from what you get from another.

Features of a typical fixed deposit investment

  • Investment period (tenor) is a minimum of 30 days and a maximum of 360 days.
  • The Minimum opening balance for this investment is N100,000.
  • If the investment is terminated before maturity the total accrued interest not earned will be forfeited. Meaning only the portion of interest earned in the period that your money was in the bank is what will be paid to you.
  • The investment amount can be terminated at the customer’s discretion.
  • The interest paid to the depositor is subject to Withholding tax (WHT), which is usually deducted from the interest earned.                                       Documents needed to open a fixed deposit:
  • Filled fixed term deposit form which will be provided by the bank.
  • Valid means of identification (National ID, Passport, Driver’s license).
  • Utility Bill of Applicant (water rate, tenement, rent receipt).
  • Customer investment advice.                                    How much you get
  • Fixed deposit rates for most Nigerian banks can earn between 7% and 12% depending on how much you have.
  • The more money you have available to invest, the higher your return.
  • For example, to get up to 12% you might have to invest in millions of naira.
  • How to Calculate Interest on Fixed Deposit:
  • Fixed deposit investments are usually calculated using simple interest, which means the key elements to take note of include; Principal, tenor and rate.
  • Example 1If Mr NaijaBanking invests N1,000,000 in fixed deposit with a Nigerian bank for a 30 day tenor and the bank offers 7%, how much will he make after 30 days?Principal – N1,000,000Rate – 7%

    Tenor – 30 days

    Step 1: Calculate interest to be earned

    = 1,000,000 x 0.07 x 30/365 = 5753.425.

    The interest on this investment will be N5,753.425.

    Step 2: Calculate interest net of withholding tax – This is because banks charge 10% WHT on interest.

    WHT = 10% (0.1) x 5753.425 = 575.3425

    Net interest = 5,753.425-575.3425 = 5178.082

    Step 3: Calculate total amount to be earned at maturity

    Total amount at maturity = N1,000,000 (Principal) + N5,178.082 (Net interest) = 1,005,178

    Example 2

    If Mr Dickson decides to increase his investment to N1,500,000 at a higher rate of 9% for a 90 day maturity offered by the bank, what will be his total investment after 90 days?

    The same principles will apply;

    Step 1: Calculate interest to be earned

    = 1,500,000 x 0.09 x 90/365 = 33,287.67.

    The interest on this investment will be N33,287.67.

    Step 2: Calculate interest net of withholding tax – This is because most banks usually charge 10% WHT on interest.

    WHT = 10% (0.1) x 33,287.67 = 3,328.77

    Net interest = 33,287.67-3.328.77 = 29,958.90

    Step 3: Calculate total amount to be earned at maturity

    Total amount at maturity = N1,500,000 (Principal) + N29,958.90 (Net interest) = 1,529,958.90.

    With this few explanation and examples i believe you should know how to calculate your fixed deposit when you apply for one.

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