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You put a thousand euros into a six-month deposit at 3% TAE, Spain's annual equivalent rate. When it matures, 12.06 euros of interest show up in your account. Not thirty, which is the sum almost everybody does in their head: twelve.
The eighteen missing euros are not being quietly pocketed by anyone. They leave through two different doors, and both are written into the contract.
The first is the calendar. The TAE is annual, and it says so in the name: it is what you would earn if the money sat there for a full year. The Bank of Spain requires it to be displayed because it is the only figure that is comparable across products, since it folds in costs, fees and how often interest is paid. But comparable does not mean collectable. If the term is six months, you collect half the journey. A hair less than exactly half, because the TAE assumes interest is reinvested as it goes: the precise sum is a thousand times 1.03 to the power of 0.5, minus a thousand. Fourteen euros and eighty-nine cents, gross.
And there is one detail that moves the result by a few cents and is written into the contract: many deposits do not count months, they count days. Over 182 days, a thousand euros at a simple 3% gives 14.96 gross and 12.12 net; with the compound formula, 14.89 and 12.06. Six cents of difference, and the bank picks the convention.
The second is the tax office. Interest on a deposit counts as investment income, and the bank has to withhold 19% before crediting it to you. Of those 14.89, two euros eighty-three go to the tax authority and 12.06 stay with you. The withholding is a payment on account against your annual return. And for most people it ends up matching the final rate anyway, because the first 6,000 euros of savings income in the year are taxed at exactly 19%.
The advertised percentage is a speed. Saying "3%" is like saying "ninety an hour": how far you get depends on how long you drive.
The same sum with other figures. A thousand euros for three months at 3%: 7.42 gross, 6.01 net. A thousand for twelve months: 30 gross, 24.30 net. Ten thousand for six months: 148.89 gross, 120.60 net. Ten thousand for twelve months: 300 gross, 243 net.
The longer terms that improve the TAE also tie the money up. There is another ceiling that is not in any advertisement: the Deposit Guarantee Fund covers up to 100,000 euros per holder per institution, so above that figure which bank it is stops being a matter of indifference. With 150,000 euros in a single bank, 50,000 fall outside that cover. 3.50% over twenty-four months sounds better than 3% over six, and it is, but taking the money out early usually costs a penalty that eats the interest already earned.
And there is an alternative worth putting beside it before you tie the money up: an instant-access savings account at 2% with those same thousand euros leaves 9.95 gross and 8.06 net over six months, four euros less than the deposit, and in exchange the money is still yours on any given morning.
And a trap that turns up all over the posters for those accounts: the high rate usually applies only for the first few months and only to new money, the money you did not already have at that bank. If the 2% lasts three months and then drops to 0.5%, the year leaves 8.75 euros gross per thousand — 7.09 after the withholding — and not the 20 on the poster.
With small amounts, what moves the result is the capital and not the rate. Going from 3% to 3.50% on a thousand euros for six months lifts the net from 12.06 to 14.05: two euros for three evenings comparing offers. On twenty thousand euros, that same half point is forty euros, from 241.20 to 281.06. With little money, pick the bank that asks you for the least paperwork; with a lot, fight for the half point.
Before you sign, do two things, in this order. First, ask for the number in euros and with a date: how much will you pay me, and on what day. It is in the contract, it is called the settlement, it is credited on the maturity date and not on the day that happens to suit you, and if nobody at the branch will write it down, the figure is not flattering. Second, if all you have is the paper they gave you at the branch, do the exact sum yourself: a thousand times 1.03 to the power of 0.5 is 1,014.89; the 14.89 of interest times 0.81 is 12.06; and 12.06 is what you will see on the statement. If they tell you thirty, show them the sum.