Fixed Deposit is one of the most sought-after investment options in India. Many expert investors suggest investing at least 30-40% of the funds in an FD since it is a safe instrument that gives you assured returns through fixed interest rates and allows you to grow your savings.
Based on your investment goals, you can choose to invest in a cumulative FD or non-cumulative FD. In cumulative FD, the interest is accrued over time and at the end of the deposit term, you get the principal amount and the interest amount in a lump sum. In non-cumulative FD, the interest is paid at regular intervals (monthly, quarterly, or annually), giving you regular income.
One of the biggest benefits of investing in a fixed deposit scheme is that the returns you get are not affected by the market condition. But if you are wondering how to calculate fixed deposit returns, read on to know your answer.
What are fixed deposit returns?
When you invest in a fixed deposit, you essentially open an FD account. You invest a lump sum amount in the account for a fixed period, which can range from 6 months to 5 years. Just like the savings account, in FD, you get fixed interest on your deposit, which forms your FD returns.
You get the returns throughout the investment tenure. For instance, if you have invested in a 5-year FD scheme, you will earn interest at a fixed rate for this tenure. The interest rate on FDs is controlled and revised by the RBI (Reserve Bank of India) from time to time, which is known as the base rate.
The banks and NBFCs then fix their rate of interest above the base rate. Thus, the interest rate on FDs varies from one financial organisation to another. However, most NBFCs offer an interest rate of about 7% or above on fixed deposits. The interest rate is generally fixed for all investors except senior citizens, who get slightly more interest on their FD investments.
How to calculate fixed deposit returns?
You can calculate the fixed deposit returns manually using the following formula:
A= P(1+(r/n)^n*t
In the above formula,
A is the amount you will receive at maturity of the FD
P is the principal amount you invested
r is the interest rate
t is the investment tenure in days
n is the frequency of interest compounding
Let us understand the calculation with an example.
Suppose Miss. Bharti has invested Rs. 500,000 in an FD scheme for five years, and the rate of interest offered to her by the financial organisation is 6.5%, and the interest is computed quarterly. So, as per the formula,
A = INR 500,000{[1+(0.065/4)]^(4*5)} = Rs. 685,043
So, the returns you get on your initial investment is Rs. 185,043
If you feel overwhelmed by the manual calculation of the returns on your FD, you can use the fixed deposit calculator or the FD interest calculator.
What is an FD calculator?
FD calculator is an online tool that is specifically designed to help you get an exact idea of the expected returns from your FD investment at the end of the deposit tenure. The FD interest calculator takes into account the principal amount, the applicable interest rate, and investment tenure to compute the maturity amount and the interest returns.
So, before you invest in a fixed deposit scheme, it is advisable to use the fixed deposit calculator so that you know the earnings in advance. This will help you make informed investment decisions. You can easily change the inputs in the calculator multiple times, so you know the difference in the returns.
Typically, the longer you stay invested, the higher will be your returns since your money grows faster with compounding effect and you get a chance to build a sizeable corpus for your future goals.
Benefits of using a fixed deposit calculator
An fixed deposit calculator is an excellent tool that allows you to know the maturity value of your investment, which, in turn, can help you in many ways:
You get a clear view of the potential earnings from your investment in an FD scheme.
You can easily compare the FD schemes offered by different financial organisations based on the interest rate and tenure and choose to open an FD with an entity where you get maximum returns.
The calculator helps you save valuable time and effort in doing the calculation of the return manually. Also, it helps you avoid making mistakes and provides accurate results.
Knowing the exact returns in advance, you can plan your finances in a better way and achieve your long-term and short-term goals.
Taxes on fixed deposit returns
Apart from knowing how to calculate the returns using an FD interest calculator, you must also be aware of the tax implications. As per the existing tax laws in India, the returns you get from fixed deposits are fully taxable. The financial entity where you hold the fixed deposit account will deduct TDS if the interest earned is more than Rs. 40,000 in a financial year.
Final Word
While calculating fixed deposit returns, you must be aware of the interest rate and type applicable to your FD account. It can be cumulative or non-cumulative. It is better to opt for a cumulative FD as the interest you earn in a period is reinvested and at the end of the term, you get a bigger corpus compared to non-cumulative FD.
