Banks quote fixed deposit rates as an annual percentage, but most fixed deposits do not run for a full year. That gap between the quoted rate and your actual tenor is where most of the confusion about fixed deposit returns comes from.
The Formula
For a single term, most Ghanaian banks calculate fixed deposit interest as simple interest, using this formula:
Interest = Principal × Annual Rate × (Tenor in days ÷ 365)
The tenor fraction is what scales the annual rate down to whatever period you actually locked your money for.
Worked Example: The Same Rate, Three Different Tenors
Take GH¢5,000 at an illustrative annual rate of 22%, held for three different tenors.
| Tenor | Calculation | Interest earned | Maturity amount |
|---|---|---|---|
| 91 days | 5,000 × 22% × (91÷365) | GH¢274.25 | GH¢5,274.25 |
| 182 days | 5,000 × 22% × (182÷365) | GH¢548.49 | GH¢5,548.49 |
| 365 days | 5,000 × 22% × (365÷365) | GH¢1,100.00 | GH¢6,100.00 |
Notice that the 91 day deposit does not earn anywhere near 22% of GH¢5,000. It earns roughly a quarter of that, because it only ran for roughly a quarter of the year. This is the single most common misunderstanding about fixed deposit rates: the quoted percentage describes an annual pace, not the amount you will actually receive on a shorter term.
What Happens if You Roll It Over
Fixed deposit interest is not automatically compounding within a single term. It becomes compounding only if you reinvest, or "roll over", your principal and interest into a new term instead of withdrawing it.
Continuing the example above: if the GH¢5,000 deposit runs for 182 days at 22% and earns GH¢548.49, then that full amount, GH¢5,548.49, is rolled into a second 182 day term at the same 22% rate. The second term earns GH¢5,548.49 × 22% × (182÷365) = GH¢608.66, for a final amount of GH¢6,157.16.
Compare that to withdrawing the interest after each term instead of rolling it over: two terms of GH¢548.49 each add up to GH¢1,096.98 in total interest, for a final amount of GH¢6,096.99. Rolling over the interest instead of withdrawing it earned an extra GH¢60.17 in this example, because the second term's interest was calculated on a slightly larger balance. That difference is compounding, and it only shows up across multiple terms, not within one.
Tax on Fixed Deposit Interest
Under the Income Tax Act, 2015 (Act 896), as amended by the Income Tax (Amendment) Act, 2016 (Act 907), interest paid to an individual by a resident financial institution is currently exempt from income tax. Tax rules can change, so confirm the current position with the Ghana Revenue Authority or your bank before treating this as a permanent feature of your return.
Why Your Bank's Actual Terms Matter
Not every bank pays interest the same way. Some pay the full interest at maturity, as in the examples above; others pay it out monthly or quarterly instead of adding it to the balance. Some use a 365 day year in their calculation, and some use 360. These differences change the exact cedi amount you receive, even at the same quoted annual rate, so read the actual agreement rather than assuming every fixed deposit works identically.
Try It With Your Own Numbers
If you want to see how reinvesting or rolling over affects a larger amount or a longer stretch of time, the compound interest calculator lets you run the numbers for your own principal, rate and time horizon.
Frequently Asked Questions
Does a fixed deposit always compound? No. A single term normally pays simple interest. Compounding only happens if you reinvest the proceeds into a new term instead of withdrawing them.
Why did my interest come out lower than I expected? This is almost always because the tenor was shorter than a full year. The quoted rate is an annual figure; a 91 day or 182 day deposit only earns a proportional share of it.
Is fixed deposit interest guaranteed to be tax free? Current law exempts individual interest income from a resident financial institution, but tax rules can change. Confirm the current position before relying on it.
Working out your own return is one part of the decision. Fixed Deposits in Ghana goes further, including how to compare that return against inflation, taxes and alternatives like Treasury Bills before you decide where your money goes.