Banks and financial institutions provide interest on your investments in Fixed Deposits (FDs). Comprehending how to calculate this interest can empower you to make more informed decisions.
A fixed deposit calculator allows you to compute potential returns to opt for an investment that suits your financial goals. If you withdraw the funds before your deposit’s maturity, you can use the FD premature withdrawal penalty calculator.
This helps you understand the penalty amount levied by the issuer when you liquidate the deposit before maturity.
How to Calculate Interest Earnings on Fixed Deposits
FDs are a popular investment choice for their stability and competitive interest rates. Banks and Non-banking Financial Institutions (NBFCs) calculate FD interest using two formulas. The formula depends on the type of fixed deposit you choose.
Check out how to calculate FD interest using these formulas.
Simple Interest
Banks use the following formula to calculate simple interest on fixed deposits-
Interest = P x R x T/100
Here,
- P refers to the principal amount
- R denotes the rate of interest
- T is the tenor
Consider the following example. Say you have invested ₹1 Lakh for 5 years at 6% per annum. In that case, you will earn an interest of ₹35,000 by the end of the investment horizon.
Compound Interest
By investing in cumulative FDs or fixed deposits with payouts at maturity, you can enjoy compounding benefits on returns. This allows you to earn significantly higher returns across a longer duration. Banks use the following formula to compute compound interest on a fixed deposit.
Interest = P {(1 + i/100n) ^nt – 1}
Here,
- P denotes the deposit amount
- I refers to the FD interest rate
- T means the investment tenor
- N is the number of times interest is compounded
If you invest ₹1 Lakh for 5 years at 6% per annum in an FD, you can earn higher returns. Under this formula, your interest income at the end of the maturity period will be ₹40,255.
Reasons to Use an FD Calculator for Interest Calculation
Calculating interest earned on a fixed deposit can be complex and susceptible to manual errors. This is because of the involvement of several factors like interest rates, tenor, and compounding frequency.
The following are some of the reasons to use the FD calculator for determining your returns-
Simplifies Calculation
Manually calculating FD interest, especially considering compounding periods, can be prone to errors. An FD calculator automates these complex calculations, providing results instantly.
Saves Time
Instead of spending time on manual calculations, the calculator allows you to focus on other financial aspects. An FD calculator offers a quick and efficient way to determine your potential returns.
Enables Better Financial Decisions
It allows you to accurately estimate your FD earnings on different offerings. You can compare multiple investment options and set realistic financial goals using the data provided by the calculator.
Easily Accessible
FD calculators are available online on the official websites of most banks and NBFCs. You can easily access them from your computer, smartphone, or tablet anytime and anywhere.
Provides Accurate Estimates
These online tools utilise precise formulas to calculate interest, ensuring accurate results. This helps you avoid surprises when your FD matures.
Efficient and Convenient
Using this tool is a hassle-free process. You simply input the required details, and the calculator provides the results instantly.
Calculate Penalty for Premature Withdrawal
Many banks and NBFCs provide FD premature withdrawal penalty calculators. This online facility allows you to estimate the penalty you incur if you withdraw your funds before the maturity date.
How to Use an FD Calculator Online
This online facility helps you determine your potential earnings from a fixed deposit with ease. Follow these simple steps to calculate potential returns on FD investment–
- Visit the FD calculator page on the official website of a bank or an NBFC offering this facility
- Enter the investment amount or use the slider to set the same
- Provide the applicable rate of interest
- Select the suitable tenor based on your investment goal
- The FD calculator will automatically provide you the estimates of the interest earnings and the maturity amount
Calculating your potential FD returns allows you to compare different offerings effectively. Using the calculator facility, you can optimise returns on your FD investment and make the most of your hard-earned money.
When comparing FD options, stay informed about changes in regulations and interest rate trends. These factors can impact your FD returns. The amount you invest and the tenor you choose will also determine how much interest you can earn.
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