According to a recent report released by the Reserve Bank of India, contribution of fixed deposits was at 57.7% for the financial year 2017-18. This substantial contribution of fixed deposits on total returns from financial products depicts the popularity of this particular form of investment in India.
Consequently, individuals opting for such safe mode of savings must be aware of the interest they can earn on a cumulative or non-cumulative basis. One should also know how to calculate and estimate the assured return.
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Individuals need to be familiar with the necessary calculation to determine interest on fixed deposits so that they can better plan their investments. To help applicants with this process, financial institutions provide fixed deposit calculator that can help calculate the associated interest against an invested sum.
Subsequently, these calculators implement different formula based on the type of fixed deposit.
Maturity amount calculation for fixed deposits
Calculation of maturity amount for cumulative and non-cumulative fixed deposit is performed as per the following formula
A = P (1+ r/ n)nt
Where A is the maturity amount, P is the deposit amount, r is the interest offered by financial institution, t represents the tenor of deposit, and n is the compounded interest frequency.
Fixed deposit calculator makes use of this formula to compute the maturity amount of an investment. However, the nature of interest payout depends upon the type of fixed deposit chosen by a particular investor.
For example, suppose an individual has deposited Rs. 25,000 for a tenor of 2 years at an interest rate of 7%, compounded quarterly. Then, the calculation for maturity amount will be
A = 25000* (1+ 7/100/ 4)4*2
A = Approximately Rs. 28, 623.
Since it is compounded quarterly, value of n is considered as 4. For annual computation, the value of n is 1, and for semi-annual it is 2. Candidates can make use of the deposit calculator and compute the maturity amount as well as interest payout for the investment online.
Interest payout calculation for fixed deposits
To calculate the interest payout, individuals can subtract the maturity amount from deposit amount.
Interest payout = A – P
In case of the above example, Interest payout = 28, 623 – 25, 000 = Rs. 3, 623
For maturity amount & interest payout calculation for cumulative fixed deposits that have tenor as 1 year, investors can follow the below mentioned example.
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For cumulative fixed deposits compounded annually, individuals can make use of the simple interest formula and compute the result.
Simple interest, SI = (P * r * t) / 100
Where P is the principal amount, r represents interest rate, and t represents tenor.
Individuals can make use of deposit calculator as well that uses the same formula for computation. Besides, a user must know the value of above mentioned variables and how to use fixed deposit calculator beforehand to determine required maturity amount and interest payout.
For example, if an individual invests in a cumulative fixed deposit of Rs. 25,000 for a year at a rate of 7%, then the calculation would be
SI = (25000 * 7 * 1) / 100 = 1750
Therefore, the interest payout will be Rs. 1750.
Maturity amount = Deposit amount + Interest earned = 25000 + 1750 = Rs. 26750.
Furthermore, what is the interest rate for fixed deposit depends upon the financial institution you have chosen for investment. NBFCs like Bajaj Finance can give up to 7.60% interest for a cumulative deposit of minimum Rs. 25,000 with 12 to 23 month tenor. This interest rate can stretch up to 7.85% for senior citizens for the same amount of deposit and tenor. This higher interest offered is a potential reason to why should senior citizens invest in Bajaj Finance FDs.
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Candidates willing to invest on fixed deposits can make use of these formulas and examples to compute the earned interest and maturity amount. Individuals relying on the calculator for computation must know what is the interest rate for fixed deposit offered by their chosen financial institution. For any case of cumulative or non-cumulative fixed deposits, the nature of interest payouts differs depending upon the type of investment option chosen by an individual.
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