A FD calculator is an online financial tool that helps in estimating the maturity amount and the interest that the account holder can earn by investing a certain amount for a fixed term. The calculator helps in finding out the approximate value of the investment (principal amount) on maturity when the interest is compounded on a monthly, quarterly, half-yearly or yearly basis.
Want to invest in Fixed Deposit (FD) but not sure how interest is calculated? Here’s a guide on how to use a fixed deposit interest calculator to compute the amount you stand to receive from your FD.
While FD doesn’t provide high returns, they are safe investments that protect the capital amount.
Both simple as well as compound interest will be calculated on the FD amount. The initial FD amount will be simple interest while the principal and subsequent interest will be calculated using compound interest.
An FD calculator makes it easy to compute the amount you stand to receive on maturity. The only variables to be inputted are the deposit amount, deposit tenure and the interest rate being offered. The calculator will then present the figure you will receive on maturity. For More about How To Use a Fixed Deposit Calculator
How do you calculate monthly interest?
In order to calculate the monthly interest that you can earn with a fixed deposit account, the FD interest calculator can be used for speed and efficiency. The FD calculator calculates the approximate interest and the total amount that the account holder will be getting at maturity. Considered to be one of the most useful tools, it allows the customers to pre-determine the earnings on the investment before opening an FD account.
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:
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 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.
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.
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.
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
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 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.