EPFO: How to calculate interest on your EPF balance ?
The interest on your EPF account balance is calculated every month but is credited only on the last day of each financial year. It’s essential to keep a track of your EPF interest earnings for your retirement planning.
Employees' Provident Fund (EPF) refers to a voluntary retirement savings scheme backed by the Central government that is available to all salaried employees and workers in the private sector. An employee contributes 12 per cent of his or her basic salary and dearness allowance towards the EPF savings on a monthly basis. In addition, the employer contributes an equal amount.
The EPF scheme is managed and regulated by the Employees Provident Fund Organisation (EPFO).
After retirement, the employee gets the accumulated fund in a lump sum. For retirement planning, you should consider calculating the interest on your EPF account balance to get the exact estimate about your retirement corpus.
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What is the interest rate for an EPF account?
The EPF interest rate is set by the Ministry of Finance every year after a meeting with the Central Board of Trustees of EPFO. The current year's interest rate for EPF is 8.15 per cent, which is slightly higher than last year's rate of 8.10 per cent.
How to calculate interest on your EPF balance?
To calculate the interest on your EPF account balance, you need to know the monthly closing balance and prevailing EPF interest rate. You need to calculate the interest for each month separately. When you open a new EPF account, for the first month the interest is zero as the opening balance is nil. For the second month you can calculate the interest on EPF balance by using the following formula.
Monthly Interest on EPF = (Opening balance of the month x current rate of interest)/12
For instance, let's suppose the first month's contribution is Rs 10,000. No interest would be accrued on this. Thereafter, in the second month the opening balance would be doubled as a fresh contribution would be made. So, the sum of Rs 20,000 would be considered for the calculation. The interest accrued would be Rs 135.83 (20000 x 8.15 per cent)/12, which would be rounded off to Rs 136. A similar calculation has to be performed for each month and adding all the balances at the end of the year would give you the annual interest amount.
EPF interest calculator
Since manually calculating the interest on your EPF balance could be strenuous, try using an online EPF interest calculator. The details you would need to enter include your basic salary plus dearness allowance, age, and the date when EPF contributions began. Thereafter, the approximate interest amount would be reflected on your screen within seconds.