A fixed deposit (FD) is one of the simplest and hence one of the most popular forms of investment. Its popularity arises from the fact that it is a safe and secure investment with few of the risks associated with other investments such as stocks or real estate, and the fact that it gives higher returns as compared to regular deposits. Thus rather than having your money lying around in your savings account, it is always a better idea to invest it in a fixed deposit scheme where it can earn higher interest. The exact interest on a fixed deposit scheme varies from bank to bank. It also depends on the duration of your deposit – the longer the duration, the higher the interest rate is likely to be. Before you invest, however, is important to know what your returns are going to be. You do this either manually using a pen and paper or you can use an FD calculator such as this one provided by Finserv MARKETS.
How to Calculate Interest on Fixed Deposit Investment?
You can calculate the interest on your FD in two ways:
- Using Pen and Paper – When calculating the interest rate on FD yourself using pen and paper it is important to understand that there are two kinds of interest rates applicable to FDs:
Simple Interest – This is applicable to FDs with a tenure of up to 6 months. The formula for calculating simple interest is:
Interest = Principal x Rate of Interest x Tenure of FD/ 100
Compound Interest – This is usually applicable to FDs with a tenure longer than 6 months. Even in this case, there are two kinds of possibilities depending on the type of payout you want :
- Monthly Payout – You take your interest payments at the end of each month. The interest rate in this case is usually calculated at discounted rates.
- Payout at Maturity –You take your payout at the end of the term period of your FD.
In case you opt for the second option, you can utilize the power of compounding as compound interest is applicable in this case. The formula for calculating compound interest is slightly more complicated.
Maturity Amount = Principal (1+rate of interest/n) ^ (n * Tenure)
Where n = number of times the amount is compounded in a year.
- Using FD Interest Calculator – As you can see, calculating FD interest using pen and paper can get complicated. Therefore, it is more convenient to use an FD calculator that gives you more accurate results. You can use this simple FD rate calculator by Finserv MARKETS. All you need to enter in the calculator are the deposit amount, the tenure of the FD, and the interest rate. The FD calculator will do the rest. If you do not know the prevailing FD interest rate, you can check the best rates from Finserv MARKETS to enter in the FD interest calculator.
In a Nutshell
FDs are a safe and convenient vehicle for investing your savings. However, the rate of interest and the duration for which you are investing make a big difference. It is advisable to calculate the maturity amount you can expect at maturity beforehand. The most convenient way of doing this is using an online FD interest calculator that gives you fast and accurate results.