Banks and non-banking financial companies are offering fixed Deposits. This is a type of term deposit. If you deposit money in a savings account, then you would get a lower interest rate as compared to Fixed Deposits. This is only the reason why FD is popular, i.e., due to high fixed deposit interest rate being offered.
In the case of an FD, the investor has two options regarding the interest earned. He can either collect it at regular intervals or reinvest it in the existing FD amount. When the tenure of the fixed deposit is completed, you will be paid your total maturity amount at that time.
The calculation of the interest that would be earned on a Fixed Deposit is a bit tricky, and hence, many may not be able to do so. Therefore, there is a tool to help you with this, i.e., the Fixed Deposit calculator. This helps an investor in calculating both the interest and the maturity amount that he/she will receive at the end of the maturity period.
What is an FD tenure?
The FD tenure is the period for which the amount that you invest in Fixed Deposits gets locked. You would not be able to get that amount back during this period, and if you take it, you would be charged for pre-maturity withdrawal. The FD tenure varies between 7 days and 10 years. You can opt for any period you want.
The most important thing where the tenure affects directly is the interest rate. The higher your tenure, the higher would be the interest rate for you. So, choose the tenure carefully after comparing the offers of different banks.
About the interest rates earned on FDs
FDs give you higher interest rates than a savings account. It also depends on the period for which you take the FD and the sum that you invest. The investor receives the interest on a quarterly, half-yearly, or yearly basis. The interest, however, is different for every bank.
Simple Interest Vs. Compound Interest
Simple interest is a pre-decided interest rate. This is earned on investment for a particular period or the number of periods. The simple formula to calculate simple interest is to multiply the interest rate, principal amount, and the time in years and divide the whole above expression with 100.
Simple Interest= PxRxT/100
Here, P stands for the principal amount, R for the rate of interest, and T for the time for which amount is lent(in years).
Compound interest, on the other hand, is given on both the principal amount as well as the interest. The interest earned every time gets added up to the principal amount, and the interest next time is calculated on the resulting sum. The formula for compound interest is-
In this case, A is the maturity amount, P is the principal amount, r is the rate for interest, N stands for the number of compounding in a year, and lastly, T stands for the number of years.
What affects the Interest rates directly or indirectly?
Certain factors may affect interest rates. Some of such elements are mentioned below-
The Reserve Bank of India: RBI manages the monetary policy of India. From time to time, according to the need of the hour, RBI keeps implementing different regulations that need to be followed by banks. So, due to these regulations, interest rates may change.
Recession: When the economy is in a slowdown, it is known as a recession. In such a situation, RBI reduces the interest rates on deposits to increase the money supply in the market.
Inflation: When prices rise, the situation is known as inflation. Hence, at such times, banks try to recover the losses on the lent loans. For this, they increase interest rates so that more people are attracted to the term deposits.
As mentioned earlier in the article, calculating the Fixed Deposit interest rate and the amount of interest being earned is not at all easy for all that too when the rates fluctuate. In such situations, you can use the FD interest calculator. These calculators are available on different websites online, and many banks have their calculators also. This includes- SBI FD Calculator, Axis FD calculator, PNB FD calculator, Indian Bank FD calculator, Bandhan Bank FD calculator, etc.