A fixed deposit (FD) is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date. The period of fixed deposit depends upon the investor. An investor can take a fixed deposit starting from 3 months to five years. More the maturity period of fixed deposit greater the amount of return which the fixed deposit will give. Fixed Deposits are a rather safe investment option for all those who are risk-averse and not too adventurous with financial investments. A Fixed Deposit is a popular investment option if you are looking for a financial product that safeguards your capital.
Current Rate of Interest on Fixed Deposits
A fixed deposit will always give you a lesser rate of return as compared to a security or a mutual fund investment. But the advantage that fixed deposit hold over security or mutual fund investment is that, it will give you a rate of return which is higher than the normal saving account return along with security of your money. The current Rate of interest offered by various banks on fixed deposit is between 7 to 7.5% for regular depositors and additional 0.5% for senior citizens.
Some banks may offer special interest rates on Fixed Deposits. It always helps to look around for the best rates offered.
Now, let’s find out how interest is calculated on your fixed deposit?
Let us start with a small understanding about simple interest and compounded interest in order to know, how interest is calculated on fixed deposit.
Simple Interest – It is the interest which is expected to be earned on the principal investment made by the investor. In case of a fixed deposit, simple interest is earned only at the time of the end of the first year of the deposit.
Let’s give you an example.
FD amount: Rs. 1,00,000
FD tenure: 3 years
Interest rate: 10% p.a.
The calculation is simple. You will earn Rs 10,000 at the end of the first year of deposit. I.e. Rs 100000 x 10% = Rs 10,000
Compound Interest – It is the interest earned on the income which already includes the interest income of the previous year.
Take an example here as well
Year 1: Rs. 1,00,000 x 10% = Rs. 10,000 (Principle + Interest = Rs.1,10,000)
Year 2: Rs. 1,10,000 x 10% = RS. 11,000
Year 3: Rs. 1,11,000 x 10% = Rs. 11,100
Total interest earned in 3 years: Rs. 32,100
Maturity value on payout after 3 years: Rs. 1,32,100
Here comes the use of Fixed Deposit Calculator
Doing all the calculations done above will confuse you as an investor. So, instead of doing all this calculation, you can use the fixed deposit calculator to do calculations for you.
Data to be put in the Fixed Deposit Calculator
Enter the deposit amount in the calculator
Enter the tenure of your deposit
Enter the interest rate the bank is offering
Click calculate and find out your maturity amount
ASK any Fixed Deposit related Queries from Experts
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