How interest rate is calculated on EPF scheme?
Ever wondered how interest on your EPF savings is calculated? It is neither like Fixed Interest or Compound Interest.It’s completely different way it’s calculated.
Interest Rate & Interest Payout
Unlike Fixed Deposit where interest rate is predefined and Interest is given Quarterly,Monthly or Yearly, here interest rate fluctuates from year to year as shown EPF Interest rate over the years
Let us say how PF is calculated for a person with a Basic Salary of 10,000 for the year 2017-18
- PF Interest rate was 8.55% for 2017-18
- At end of the April 2017 , no interest gets calculated as the previous balance is zero
- Interest doesn’t get calculated every month, once Interest rate is announced, it’s calculated and added to the Year End Balance
- In this case Year End Balance is 18804 and Interest accrued from Apr 2017 to Mar 2018 is 736
- So the Total Balance as on March 31,2018 would be = 18804+736 = 19504
|Month - Year||Basic Salary||Employee Contribution (12%)||Employer Contribution (3.67%)|| Balance at the |
End of the month
|Balance||(Balance in Mar2018+Interest accrued)||18804+736||19540|