A Guide To Fixed Deposit And How It Is Calculated?

Aug 10, 2022

What is a Fixed Deposit?

Most banks and non-banking financial Companies (NBFC) provide fixed deposits (FDs). Fixed deposits have a variable period, returns, and a predetermined interest rate. Regardless of market volatility, you will always receive the predetermined interest on your FD investment. Tenure options for investments range from seven days to ten years.

What is an FD Calculator?

An investor can estimate the FD maturity amount for a specified tenure using the fixed deposit calculator. Before investing, you can calculate the interest income using an FD calculator. The investment amount, current interest rate, and tenure are entered into the FD calculator. The output is the amount of wealth accrued at maturity.

The fixed deposit calculator merely estimates wealth gained; it makes no guarantees about the value calculated based on the supplied inputs. To assess the maturity of an FD, use the user-friendly and straightforward online FD calculator provided by financial institutions, such as SBI.

How to use the Fixed Deposit FD Calculator?

Before investing, an investor must be aware of the due amount. This will guarantee that the investment opportunity chosen will meet the investor’s financial aim at maturity.

FD calculators use different methods. The SBI’s FD calculator offers the “investment amount method” and “target amount method”.

Investment Amount Approach

To determine the maturity amount, perform these steps:

  1. Enter the investment amount first.
  2. The investment length in years or months is now required.
  3. Give the interest rate.
  4. Choose between monthly, quarterly, half-yearly, or yearly compounding. The fixed deposit’s payout tenure is the compounding term. Choose this area wisely because the interest in FD depends and changes with the compounding time.

The online FD calculator determines the following based on the information previously provided:

  • Total initial investment
  • The money earned in the form of interest
  • The maturity value

Target Amount Approach

You can calculate the investment required to reach the target maturity amount using the target amount approach. Then, all you are left to do is fill in the information about your investment objective as described in the process below:

  1. First, state the desired maturity amount.
  2. The investment length in years or months is now required.
  3. Enter the fixed deposit interest rate.
  4. Choose between monthly, quarterly, half-yearly, or yearly compounding. The fixed deposit’s payout tenure is the compounding term. You must choose this field carefully because the compounding period affects the interest generated on the FD.

Based on the previously mentioned information, the online FD calculator will tell you how much money you need to invest to receive the specified maturity amount. Also, the interest amount will be paid on the investment.

The Fixed Deposit Investment Graph is another resource you can use. Additionally, you can download the investment report to get a complete breakdown of the periodic dividend. You can get them monthly, quarterly, half-yearly, and annual.

Fixed Deposit Calculation Formula

The bank’s interest rate on the fixed deposit is already known when the investment is made. But, the specified deposit interest rates are influenced by a few things, some of which are listed below:

  1. First, the length of the investment is a component that impacts the interest; the longer a person invests, the greater the accrued interest will be.
  2. A senior citizen’s interest rate is higher. Preferred interest rate is the name given to this extra interest rate. Banks usually pay a 0.5% higher interest rate.
  3. Another important determining element is the current state of the economy. When determining interest rates, financial institutions and banks depend on policy rates set by the central bank.
  4. Finally, there are two ways to figure out the interest on a fixed deposit; the simple interest method and the compound interest method.

Simple Interest on Fixed Deposit

Calculation formula

Simple interest = (P * R * T)/100

P – Invested principal amount

R: Interest rate ( percent )

T: Tenure

A Simple Interest Example

Mr. Arun made a 10-year investment of INR 100,000 at a rate of interest of 5%.

Simple Interest is calculated as (100,000 * 5 * 10)/100 to equal INR 50,000

The P is INR 100,000.

The R is 5%.

The T is 10 years.

Simple Interest + Principal = Maturity Value.

= INR 100,000 + INR 50,000

= Rs 150,000

He will have ₹150,000 at the end of his investment period of 10 years.

Compound Interest On Fixed Deposit

The accrued interest increases with the number of years over which interest compounds.

Calculation formula

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

A = Maturity amount

P = The invested principal

r = Interest rate in decimals

n = The number of compounding periods in a year

t = The number of years

A Compound Interest Example

Mr. Arun invested INR 100,000 for 10 years at an interest rate of 5% per annum compounded quarterly

In this case, the principal amount invested is INR 100,000.

The interest rate is 5%.

The number of compounding periods in a year is 4, as the interest is compounded quarterly.

The number of years of investment is 10 years

A = 1,00,000* (1+0.05/4) ^ (4*10)

A i.e. maturity amount = INR 1,64,362

Interest amount accrued = INR 1,64,362 – INR 1,00,000 = INR 64,362

Why should you use the FD Calculator?

You should only invest in any plan after conducting a careful analysis and investigation. The investment strategy must meet your investing goals. You must utilize a calculator to determine whether the investment strategy satisfies your investment goals. By doing so, you will avoid any regrets and surprises in addition to making an informed selection. Once an investor has a particular financial objective in mind, they may choose which investment strategy to go with.

Banks offer online FD calculators. For instance, SBI offers a straightforward yet valuable online FD calculator to assist you in making an investment choice.

  • Using the fixed deposit calculator, you can compare the fixed deposits offered by various banks. In addition, you can optimize your investment by comparing as each bank and NBFC offers a different interest rate.
  • A fixed deposit with a flexible duration that ranges from 7 days to 10 years is available for investment. In addition, you can modify the calculator to determine which FD period will achieve your desired goal.
  • Similarly, you can change the fixed deposit’s compounding term payout period. You should know the best compounding period for your payout time.
  • You have two options for performing your calculations and analysis: by target amount and by investment amount. Use the investment amount strategy when you already have a specific investment amount in mind. The target amount technique makes you do your analysis backward.
  • The SBI FD calculator also offers you a report that can be downloaded. A thorough analysis of the FD wealth gained, monthly, quarterly, half-yearly, and annual payouts, and the maturity amount are provided in the report.
  • This FD calculator can also compare the wealth generated with other investment opportunities in a related area.

Other Investment Alternatives

It is always a good idea to consider various investment alternatives to expand your portfolio. Thus, you reduce your risk and maximize your rewards. You can make investments in safe options like fixed deposits and government bonds. Consider investing in stocks if you have a high-risk tolerance. One of the recent investing opportunities made possible by technology is P2P lending. The fixed maturity peer-to-peer investment plan from LenDenClub offers up to 10–12%* annual returns on your investment. This allows you to earn incremental real returns that can beat the inflation rate, in turn increasing your purchasing power over time! You can choose from various investment tenures from one to five years. So, click Invest today!

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