Investing in an FD is a great option for earning good returns in a secure way. However, the interest rate aspect of it can be confusing for many. A fixed deposit involves a one-time deposit with the bank for a fixed period of time. This deposited amount earns interest over that duration at a certain rate. On maturation, the account holder receives the total sum with the interest earned on it.
Hence, all investors want to know how much interest their FD will earn, and what is the payable amount at the end of the tenure.
There is more than one way to calculate the interest on FD. Read on to learn more about how FD interest is calculated and what tools can help you do it.
How To Calculate Interest On FD?
Interest on FD can be calculated in two ways: simple interest and compound interest.
The method used is up to the bank’s discretion and depends on the deposit amount and FD tenure.
- Simple interest is the interest earned on the principal amount. The formula for calculating simple interest is:
Principal amount x Rate of Interest x Time Period / 100
- Compound interest is the interest earned on the principal amount. The first step of calculating compound interest uses the same formula as simple interest. Then the sum of the principal amount and the interest earned over the first year becomes the principal amount for calculating the interest for the second year, and so on. The formula is: P {(1 + i/100)n – 1}
Here, P = principal amount; n = years; i = rate of interest per time period
How To Calculate FD Interest With A Fixed Deposit Calculator?
In spite of the given formulae, calculating the total FD amount or earned interest can be a hassle, especially with larger sums. In order to make the whole process quick and hassle-free, we can use certain online tools such as a fixed deposit calculator. Most financial institutions offering FD schemes have online platforms where you can browse their plans and use their FD calculators. Similarly, for FDs offered by the Indian Post Office, there are several portals that offer Post Office FD Calculator online.
This calculator automatically accounts for all the involved components and calculates the total amount payable on maturity. All you have to do is enter the necessary numbers for principal amount and tenure. In some cases, you may have to input payout frequency and the relevant FD interest rate. You can compare different payout options by changing these numbers to find the most ideal option for you.
Conclusion
Anyone looking to invest in an FD should remember that the interest rate will vary depending on the tenure. Longer tenures do not necessarily mean higher interest. Analyze all the available options closely, and look up interest rate tables on your bank’s official website. With the help of an online fixed deposit calculator, you can easily find a tenure that earns you the highest interest.
