Public savings in the Banking System are of prime importance to
dictate the economy of India. A major component of such savings is
through Time deposits constituting nearly 85\% of the Total deposits.
Furthermore, Term deposits constitute a major component of such Time
deposits. Considering all scheduled commercial banks of India, Time
deposits are in the order of Rs. 830,000 crores and are growing at
more than 17\% every financial year. The interest amount paid on the
Time deposits directly depends not only on the rate of interest
applicable to such deposits but also on a number of other factors,
including the method used to calculate the same. Though there has been
a lot of discussion in the literature on the quantum of the rate of
interest, there appear to be no discussions on the method of
calculating such interests. This could be because it was thought that
the method of calculation should have one and only one meaning. In
this paper, we discuss the mathematics of rate of interest and give
several different methods of calculating the interest amount. Although
not an exhaustive list, the methods of calculating interest described
here are some of the more common methods in use. They indicate that
the method of interest calculation can substantially affect the amount
of interest paid, and that depositors should be aware not only of
nominal interest rates but also of how nominal rates are used in
calculating total interest amount. Moreover, since the depositors
constitute 89\% of bank customers, in the interest of customer
protection as also to bring about meaningful competition we observe
that it is necessary to have a greater degree of transparency in
regards to effective interest rates for depositors.