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Guide to making money by investing in Nigerian Fixed Deposits

Nigerian fixed deposits, mark to market

This articles explains investing in Fixed Deposit and how much you can make from it and how it is calculated. 

A fixed deposit is an investment with a specific amount 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

Advantages of Fixed Deposit Investment

[Read Also: Fixed Deposits or Treasury Bills, Which Is Better?]

Documents needed to open a fixed deposit

How much you get

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.

[Read Also: Difference Between Fixed Deposit and Treasury Bills]

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Example 1

If Mr Bello 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 – N1,000,000

Rate – 7%

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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 N5753.425.

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 Bello 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

[Read Also: The Pain and Gain of Money Market Fund Investment]

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

If you plan to invest in a fixed deposit, it will be wise to contact between 3-5 banks and find out which bank offers the most competitive rate before placing your money.