Finance & Loans

How is the Fixed Deposit Interest Rate calculated?

Fixed deposits (FDs) are a secure investment option that offers stable interest rates, special rates for elderly citizens, a variety of interest payment methods, no market risk, and income tax benefits. If you want to invest your money in a secure investment avenue with good yields and flexible tenure possibilities, FD is the perfect fit.

Here is everything you should know about how FD interest rates are calculated:

FD interest rate calculation

It is vital to check for the latest fixed deposit rates offered by India’s leading banks and financial institutions before opening a new FD account or renewing an existing one. Unlike mutual funds online, the tenure of your FD and the number of your payouts determine the interest rate of your deposits.

The FD formula for calculation of interest is:

A = P (1+r/n) ^n*t

Where,

  • A is the maturity amount
  • P is the principal amount
  • r is the rate of interest
  • t is the number of years
  • n is the compounded interest frequency

There are two ways to calculate the interest on the principal amount. One is the simple interest, the other is the compound interest. The prime difference between the two methods is that in the first method, the interest is earned only on the principal amount, and in the latter, the interest is generated on both the principal amount and the accumulated interest.

Fixed Deposit Calculator

A fixed deposit calculator is a financial instrument that helps you figure out how much your deposit will be worth at maturity, based on the current interest rate. The calculator is simple to use and will guide you in comparing FD options with different tenures and interest rates from various banks and financial institutions. The FD calculator tool makes it easier for users to determine the bank and FD term to accumulate the highest fixed deposit maturity sum.

The online FD calculator can help you know the maturity amount by calculating your compound interest on a monthly, quarterly, half-yearly, or annual basis.

Factors affecting FD interest rates 

  • Deposit tenure: The shorter the deposit tenure, the lower the interest rate, and the longer the deposit tenure, the higher the interest rate.
  • Deposit amount: Greater deposit amounts, notably bulk deposits above Rs. 1 crore, can help you earn higher interest rates.
  • Depositor type: Senior residents often receive an extra 0.25% to 0.50% interest rate on fixed deposits.

Benefits of Fixed Deposit Calculator

  • The room for errors is minimized since everything is automated.
  • You can also compare the interest rate of different banks and choose the perfect FD accordingly.
  • It aids in making better decisions by comparing different maturity amounts.
  • It makes future financial planning easier by calculating how much the fixed deposit will fetch at the end of the tenure.

Ideally, it is essential to choose an investment vehicle based on your financial fitness, goals, and risk appetite when it comes to investing. FDs help you generate excellent returns on your investments while avoiding the chance of losing your hard-earned cash due to market swings. However, if you want to hedge against inflation in the long run and invest as per your risk tolerance, consider investing in mutual funds online through the SIP mode.

Use the Tata Capital Moneyfy App to start investing in mutual funds online.

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