Wednesday, 19 May 2010

Cash Profit Rates (percentages) of National Savings

Whenever you invest your money in any of investment schemes in National Savings to get cash profit on regular basis, you never know until the completion of entire (and rather lengthy paperwork) how much cash you are actually going to take home.

General (R) Pervez Musharraf's government regularly and drastically reduced National Savings profit rates and, even now, you can never say for sure how much income tax you will be slapped with.

However, people at National Savings are kind enough that they will give you a clear figure of percentage of income tax if you ask them. Nevertheless, the percentage of profit they tell you, although technically true, is always somewhat misleading as to how much actual cash you'll be able to feel in your pocket.

After doing a little elementary algebra based on my experience with National Savings, I have come up with an equation which can solve a big mystery in a matter of minutes.

Mystery: What percentage of your amount you actually get in cash profit in any regular income scheme at National Savings?

And the answer is:

In this equation, x is the actual, working percentage of cash profit you are taking home. It is useful, when you already are taking home some amount of cash from an investment scheme, and you want to calculate how much money you could make on a different amount in same investment.

Here's how to use above equation. Let's start with variables.

x is percentage of cash you are currently taking home. National Savings never tells you this percentage. Your goal is to find the value of x.

P is the amount of cash you receive in profit from National Savings on an your investment.

y is number of times you receive the profit every year. It is generally a number from 1 to 12.

a is the amount of money that you have invested.

t is the percentage of income tax on your profit. This you have to ask National Savings by simply asking, "what is the percentage of income tax?"

By knowing P, y, a and t, you can calculate x, the percentage of cash profit that you get on your investment amount. From this percentage you can calculate possibilities of cash profits on different amounts in the same scheme without going through all banking mumbo jumbo of National Savings.

Using this equation in Microsoft Excel

Above equation is for pen and paper only. This equation may not give you proper answer in Microsoft Excel if you are not familiar with how the software works with percentages.

To use this equation in MS Excel, change into following:

In Excel, this equation will be entered as following:


Where P = B1, y = B2, a = B3, t = B4

It is because of % sign in Excel's equation that we have to change 10000 to 100. If you want to use the original equation in Excel, then do not use % sign.

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