What is an FD
A Fixed Deposit, generally known as FD, is a type of fixed-term investment. It gives a return on the money at a steady rate. FD is considered one of the safest options for investment. The condition is that the money is deposited for a fixed term, after which the FD matures. On maturity, the depositor gets the initial investment (Principal) and the interest back. After the FD matures, the investor has an option for re-investment, which depends on the investor’s requirements. The rate of interest on FD is more than a savings account.
Tenure of FD
Fixed Deposits are offered by Banking and Non-Banking Financial Institutions, including post offices across India. FD can be kept starting from 7 days up to 20 years in most banks. The tenure is fixed at the time of starting the FD; this tenure cannot be changed in between. If investors require money, they can break the FD before the maturity date. Breaking an FD before maturity may attract a penalty. The tenure also determines the interest rate on FD; generally, more interest is given on a longer tenure.
What is the FD rate of the Interest Calculator?
Interest is the money added over the original investment in the FD for a fixed time. To calculate the rate of interest on FD, some computations are carried out. An FD rate of interest calculator has been made to make this process easy and convenient. You need to enter the amount you are willing to invest (Principal). Now, enter the tenure of the FD. The FD rate of interest calculator will display the amount available at the time of maturity.
How does the FD rate of interest calculator work
The above paragraph displays the result, but we will now see how the interest rate is calculated.
| The Simple interest formula to get the amount is A = P X R X T |
Where, Amount is A, P is the Principal, and R is the rate of Interest. T is the Period for investment. This formula does not take into account the power of compounding. Compounding is the interest that is calculated on the addition of Principal and Interest for the first tenure. This is what makes interest accrual at a faster rate.
| For the total amount compounded at the end of the tenure, the formula is A = P x (1+ R/N) ^ (TXN) |
Here, A is the Amount, P is the Principal, R is the Rate of Interest. T is the Period of investment and N is the number of times compounding is done (quarterly, annually).
| For E.g. If P= ₹1000/-, R* = 10 %, and T = 5 yearsAs per the Compound Interest formula, A =1000 x (1+0.1/1) ^ (5X1) A = Rs. 1610.51/-*Rate of interest for illustration only |
In the above formula, the number of times compounding is done is considered annually (=1).
Advantages of FD rate of interest calculator
This calculator is a great tool to determine the amount at maturity. Here are the reasons to use this tool.
- Easy calculation
This calculator is free and widely available on the internet, making it easy to find and use. Also, the calculations involved take lots of time if many variable factors are present. Just putting in the values will get the result in no time.
- Knowledge of outcome before investment
An investor should know the outcome of their investment after the tenure is over. This will help them make informed decisions about the time they want to invest. They can also decide whether they want to invest in FD.
- Comparison of different interest rates
Since the calculation is easy, investors can compare the final output of their investment at different interest rates. It helps determine the institution investors should choose, as interest rates differ in other institutions.
Conclusion
The interest rate on FD is an essential factor for determining the institution for investment. FD interest rate calculator helps make the decision and should be used freely to make investment decisions. Banks provide a better interest rate for FD and have various options related to cumulative and non-cumulative deposits. They also have attractive interest rates for senior citizens. To know more about interest rates and tenures of FD, visit your nearest bank.
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