How does the fixed deposit work? How to calculate FD?

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According to Statista, Indians invested over 46 trillion rupees as individual assets in bank fixed deposits in 2020. This was a massive increase in the value of fixed deposit assets compared to the previous year’s 44.18 trillion rupees, showing the importance of FDs (Fixed Deposits) amongst Indian families.

So, before starting your investment journey, firstly, you need to understand if a fixed deposit is a right investment in 2022.  

Although there are several rewarding investment options, a fixed deposit account offers you the best-fixed deposit interest rates that do not fluctuate based on the market conditions. This blog will help you understand how a fixed deposit works, its benefits, various types of fixed deposits and how to calculate your returns on an FD.   

Fixed Deposit 

A fixed deposit account is an investment tool that allows you to invest a considerable amount of money for a fixed tenure at a fixed interest rate decided by banks/NBFCs (Non-Banking Financial Companies).  

fixed deposit

The interest rates in an FD (fixed deposit) depend solely on your investment’s tenure. Banks offer a term ranging from 7 days to 10 years. It should be noted that shorter fixed deposit tenure will attract low-interest rates and vice versa. However, depending on your convenience, you can decide on the fixed deposit tenure. 

How does a Fixed Deposit Work? 

A fixed deposit is also known as a term deposit because the tenure of the deposit plays a crucial role in calculating the interest rate and maturity amount.  

When you invest in a fixed deposit account, your funds are locked for a fixed tenure; a fixed interest-based is added on the tenure and shows you a consolidated amount (principal and interest returns) that you will receive at maturity.  

As the tenures for fixed deposit accounts are flexible, you can manage multiple fixed deposit accounts and maximise your investment.  

Types of Fixed Deposits 

Before starting an FD, you must understand the different types of fixed deposits available in the market.  

  1. Cumulative Fixed Deposit 
  1. Non-Cumulative Fixed Deposit 
  1. Company Deposit 
  1. Tax-Saving Fixed Deposit 
  1. Senior Citizen Fixed Deposit 
  1. NRI Fixed Deposit 
  1. Standard Fixed Deposit 

Benefits of a Fixed Deposit  

Here are the benefits of a fixed deposit that highlights why you should invest in a fixed deposit in 2022; 

Assured Return – As a fixed deposit account is resistant to market volatility, you are assured of getting your principal amount and a reasonable return rate.  

Low Minimum Investment – A fixed deposit account allows you to start an investment with an amount as low as Rs. 500. 

Benefits of Compounding – An FD investment allows you to earn interest on the added interest amount. Therefore, you can earn higher returns and multiply your money quickly. 

Easy Process – An FD is the easiest investment option to open, maintain and close. 

Higher Rates for Senior Citizens – Although the interest rate on a fixed deposit is stable, banks and NBFCs offer exclusive interest rates for senior citizens to earn extra on their fixed deposit investment. 

Liquidity – A fixed deposit account allows easy liquidation in the form of premature withdrawals. However, banks will lower the interest rate on your maturity amount or charge a penalty on your FD account for premature withdrawals. 

How to Calculate a Fixed Deposit?  

There are many ways to calculate a fixed deposit. But, using a fixed deposit interest calculator is the best and easiest method to calculate your fixed deposit returns. 

  1. Fixed Deposit Interest Calculator  

An FD interest calculator is an instrument used to calculate the interest you would earn on a fixed deposit. You can quickly estimate the maturity amount with a specified rate of interest you can expect at the end of your tenure. 

 

How to use Shriram’s Fixed Deposit Calculator? 

Shriram FD calculator is simple to use. You can follow these steps and quickly calculate your FD.  

Step 1 – Enter the principal amount you are ready to invest. 

Step 2 – Enter the tenure/period as per your requirement. 

Step 3 – Hit the “Invest Now” button to view your FD maturity amount (principal + interest amount). 

  1. Simple Interest Calculation 

Simple interest calculation is the easiest way to calculate your interest on an FD. You only have to multiply the principal, fixed interest rate and tenure. Principle(P) x Rate of Interest(R) x Tenure(T) divided by 100, i.e. (P*R*T/100) 

  1. Compound Interest Calculation 

Compound interest is the profitable interest calculation in a fixed deposit because you earn interest on your principal amount and the interest. Several banks and NBFCs offer compound interest, but you have to ensure you get reasonable interest rates before you start an FD.  

The formula for compound interest calculation is P {(1 + i/100)n – 1} 

Where, P = Principal; n = Number of years; i = Rate of interest per period 

As fixed deposit accounts help you forecast and plan your finance in the long run, the above calculations will help you understand the total maturity amount at the end of your FD tenure. However, it would be best if you decided on your investment option based on your financial and personal needs. 

Yes, Fixed Deposit is the Right Investment! 

If you are looking for guaranteed returns, high-interest rates, zero risk and growth, you must invest in an FD (Fixed Deposit). So having understood how an FD works and the calculation behind the FD interest rate returns, find the best FD scheme that fits your financial needs and start your FD investment today. 

Also read, Case Study Advantages and Disadvantages

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