Fixed Deposit
A fixed deposit is a long term financial vehicle that is offered by a financial institution where individuals can deposit their lump sum money and get a higher rate of interest than a regular savings account. FD has become the most popular investment vehicle among Indians in the last few years. The tenure of FDs varies from 7 days to 10 years, and under Tax saving FD, individuals are provided with an option to save their money on taxes. FD is a risk-free investment as the interest is guaranteed, and it encourages saving. Thus, it assists one in wealth creation and saving taxes.
How is the interest rate on Fixed deposits calculated?
The mathematical formulae for the calculation of fixed deposits are as follow:
A = P x (1 + r/n)nt
I = A – P
Where,
A= maturity value
P= Principal
r= Interest rate
t= tenure or investment time period
n= frequency of compounded interest
I= Total interest to be earned
Example
Ram deposited an amount of Rs.20,000 X Bank for three years at a compounded quarterly annual interest rate of 5% then,
Principal amount = Rs.20,000
Interest rate= 5%= 0.05
Tenure= 3 years
Compounded interest= quarterly
Step 1
A = P x (1 + r/n)nt
= 20000 x (1+0.05/4)
= 20000x (1+0.0125)
=20000x (1.0125)
= 20000x 1.160754517
Maturity Value (A) = Rs.23,215
Step 2
I = A-P
= 23,215- 20000
Interest earned (I) = Rs.3215
How to calculate FD interest rate online
Individuals can calculate interest on FD online by entering the following details :
- Deposit Amount: The lump sum amount deposits in the bank in the form of FD.
- Tenure: The tenure for which the amount is deposited.
- Interest Rate: The fixed deposit interest rate earned on the amount.
Benefits of FD calculator
- Easy accessible
The FD calculator is readily available, anyone with basic internet service can use it without incurring any cost. Most financial institutions provide an E calculator on their official website for the assistance of its users.
- Customer-friendly
The E- calculator is easy to use and is customer friendly. It is “friendly” to the user, means it is not mired with complex formulae and can be used easily. It is simple, well organized, intuitive, reliable and provides a great user experience.
- Saves Time and energy
Calculating FD interest is not a cakewalk; it requires an individual to know the cumbersome and lengthy formula. Even after knowing the method, the time involved in calculating is too much. FD calculator becomes a saviour. Once an individual input the various numbers, the FD calculator will do the rest of the calculation on its own which only takes a few minutes.
4.Accuracy
One of the significant benefits of using the Fixed deposit calculator is that it gives a precise and accurate estimation of the interest to be earned. Unlike the manual method, there is no chance of error.
5.Helps in the selection of the best FD
The FD calculator assists you in trying various combinations by altering the three key factors of calculation. Individuals can change the interest rate, the amount invested and the tenure of the FD. It helps one in taking a more thoughtful decision before applying for investing in an FD.
