What are Fixed Deposits

Fixed deposits are fixed-income savings accounts. Money is deposited for a fixed period of time and for a fixed rate of interest. It is a safe mode of investment preferred by risk-averse investors. Fixed deposits are offered by both banking institutions i.e. bank deposits and non-banking institutions i.e. company fixed deposits. Fixed deposit interest is either paid-out to create a regular income stream or reinvested/compounded for higher returns.

What is a FD (Fixed Deposit) Calculator

A fixed deposit calculator is an online financial tool that enables depositors to calculate returns on their deposit i.e. maturity benefits. It is a virtual calculator which lets users’ input basic details such as deposit amount, deposit period and interest rate to calculate returns on maturity.

The FD Calculator at Bank Bazaar has been designed to be user-friendly and offer a pleasing user experience. It eliminates the need for manual calculations. Even computer tools like spreadsheets cannot provide the kind of convenience and ease of a fixed deposit calculator.

Users have to input the following details in the relevant fields:

• Deposit amount - the amount they invest in a particular deposit scheme
• Deposit tenure - the period for which the amount is invested
• Deposit interest rate - the rate of return offered on a chosen scheme

Once these details are entered, all that a user is required to do is hit ‘Calculate’ and the result i.e. the maturity amount is automatically, instantly and accurately revealed.

Users save time, effort and money. By making real-time calculations, depositors can compare fixed deposits from various bank and companies and determine which scheme provides the highest returns. They can then directly apply for the chosen scheme through Bank Bazaar’s site by navigating to the relevant scheme page.

Accurate and quick calculations allow users to plan their investments better. It is especially useful in case of deposit renewals. While interest rates are fixed over the life of a deposit, they can differ at maturity. Renewals are always done at the interest rate prevailing at maturity. New rates may be higher or lower depending on bank norms. Using the calculator, depositors can decide whether they should continue with the same deposit scheme or switch to another by comparing maturity amounts.

Calculate maturity amounts using BankBazaar Interest Calculator

Calculate maturity amounts using the Bank Bazaar Interest Calculator instantly and accurately

As can be seen from the example above, manual calculations can be tedious and confusing leaving much room for error. It is also useful to cross-check the amount credited to your account either as pay-outs or at maturity since there can be a lapse on the part of the bank/company in calculating returns. It gets more complicated when it comes to comparing schemes to ascertain maturity amounts; especially since compounding frequencies differ between schemes.

Compound Interest Calculator

The Compound Interest Calculator form Bank Bazaar is an online financial tool that allows users to input deposit details viz. deposit amount, deposit period, the interest rate offered on the chosen FD scheme and the compounding frequency. The whole process of keying these details in the calculator and obtaining the results can be completed in a few easy steps. Results are returned instantly and accurately.

Difference between Simple Interest and Compound Interest

When interest is calculated on your deposits, it could be calculated in two ways. Under the Simple Interest method, interest is calculated on the initial deposit amount or principal. Irrespective of how often interest is calculated it will always be calculated on the principal. Under the Compound Interest method, interest is calculated on the principal and interest earned thereon.

Let us consider this with an example.

Simple Interest

Suppose you deposit Rs.1 lakh in an FD for a tenure of 3 years for an interest rate of 10% p.a. where interest is calculated annually.

Here, interest will be calculated on the principal of Rs.1 lakh only.

The interest you will earn will be as follows:

Year 1: Rs.1,00,000 X 10% = Rs.10,000

Year 2: Rs.1,00,000 X 10% = Rs.10,000

Year 3: Rs.1,00,000 X 10% = Rs.10,000

Total interest earned at the end of 3 years = Rs.30,000

Maturity Value (payout at the end of 3 years) = Rs.1,00,000 + Rs.30,000 = Rs.1,30,000

Compound Interest

Consider the same example, except in this case interest is not just calculated annually but also compounded annually.

Here, interest earned will be added to the principal for subsequent interest calculations.

The interest you will earn in this case will be as follows:

Year 1: Rs.1,00,000 X 10% = Rs.10,000

Year 2: (Rs.1,00,000 + Rs.10,000) x 10%

= Rs.1,10,000 X 10% = Rs.11,000

Year 3: (Rs.1,10,000 + Rs.11,000) x 10%

= Rs.1,21,000 X 10% = Rs.12,100

Total interest earned at the end of 3 years = Rs.33,100

Maturity Value (payout at the end of 5 years) = Rs.1,00,000 + Rs.33,100 = Rs.1,33,100

We can see when interest is compounded, the payout is higher. This is because the interest earned is added to the principal amount and this becomes the basis of interest calculation.

Compounding frequencies can vary between FD schemes. Usual, compounding frequencies are quarterly, half-yearly or annually.

Simple interest is easier to calculate than compound interest. However, using an FD interest calculator eliminates the need for manual calculations. However, it is important to note the compounding frequency i.e. how often is interest reinvested.

If interest is stated at 10% per annum, it denotes a yearly interest rate. To calculate interest half-yearly, the rate to be considered will be 10% X 6 months out of 12 months = 5%; to calculate interest quarterly, the rate to be considered will be 10% X 3 out of 12 months = 2.5%

Compound interest or reinvestment options are great for maximising returns. This works well for those who want to stay invested for a fixed period of time. The longer the deposit period, the better the returns under a reinvestment scheme.

Reinvestment yields higher returns but pay-outs are ideal for those who prioritise liquidity. Reinvestment is ideal for long-term deposits.

If interest is calculated every month, the annual interest rate will have to be considered on a per month basis. Similarly, if it’s calculated every half-year, the annual interest rate will have to be halved.

Interest Pay-out Vs. Reinvestment Options

Interest earned on FDs is either paid-out or reinvested at regular intervals.

Interest payout or compounding frequencies are usually monthly, quarterly, half-yearly or annually.

In case of pay-outs, interest is calculated on the principal i.e. the initial deposit amount for the subsequent period before the next payout.