Investors today have a wide selection of high-yielding investment options to choose from. Yet, fixed deposits continue to enjoy enduring popularity as a reliable path to wealth creation. This is primarily because a fixed deposit is free of risks, offers high returns, and comes with flexible tenures.
If you are thinking of investing in a fixed deposit, it is advisable to use a fixed deposit (FD) calculator. An FD calculator is a free online tool accessible on all banking websites. It helps an investor calculate the interest for a sum deposited over a period of time. All you have to do is enter the requested information – investment amount, FD tenure, and rate of interest – to find out your FD maturity amount in a matter of seconds.
Here is everything you need to know about the various inputs used by an FD calculator to estimate the interest and maturity amount.
How Does an FD Calculator Work?
An FD calculator works on the basis of the data you enter. These are:
- Principal Amount: The initial deposit you make to open a fixed deposit.
- Interest Rate: It is the annual rate of interest. The longer the tenure of your fixed deposit, the higher the interest rate.
- Deposit Type: There are two types of fixed deposits based on the frequency of payouts: cumulative and non-cumulative. In a cumulative fixed deposit, the interest is compounded annually and paid at maturity. In a non-cumulative fixed deposit, the interest is paid monthly, quarterly, half-yearly or annually.
- Tenure of Investment: It is crucial to enter the length of time on the fixed deposit calculator. You can choose to enter your FD tenure in months or years.
The FD calculator gives you the maturity amount and interest earned after you have submitted the requisite inputs.
You may use the FD calculator multiple times to figure out how much to invest, the length of the tenure, and which type of FD to choose in order to help you achieve your financial goals.
Formula of the FD Calculator
There are two methods to determine the interest on a fixed deposit: simple interest and compound interest.
1. Simple Interest: In case of simple interest, the principal amount remains constant over the tenure, and there is no concept of earning interest on interest.
SI= P x R x T / 100
Where, SI = Simple Interest
P =Principal Amount
R = Rate of interest
T = Time period (in years)
2. Compound Interest: It is the interest earned on interest.
A = P (1+r/n) ^ (n * t)
Where, A = Maturity amount
P = Principal amount invested
r = Rate of interest
n = number of times interest is compounded annually
t = number of years
Step-By-Step Process for Using a Fixed Deposit Calculator
- Visit the FD Calculator Page: Find out which bank or financial institution supports your investment plans and visit their FD calculator page.
- Enter the Required Information: Now, enter the requisite information, such as the investment amount, tenure, and interest rate. Hit the ‘Calculate’ button.
- Check the Returns: The FD calculator will instantly display the returns and interest that a particular FD plan will offer at maturity.
Final Thoughts
If you wish to enjoy the security an FD offers while obtaining good returns, an IndusInd Bank FD may be a good idea for you. You could always use an IndusInd Bank FD interest calculator to ease the process of investment analysis and make a sound and informed investment decision.