Finance

How to calculate returns on FDs?

A fixed deposit is a known investment option; various banks and financial institutions offer that. Fixed deposits are offered by various banks such as private banks, public banks, commercial banks, cooperative banks and even by small finance banks and NBFCs that are the Non-Banking Financial Corporations. It is a popular investment option due to a number of factors and majorly because it is safe, secure and provides guaranteed returns. Further, the returns offered on FDs is higher than that of a savings account. The return on fixed deposits is earned in the form of FD interest rates, that is paid to the investor at regular intervals and can also be reinvested. The returns on this fixed deposit, however, can be calculated using an FD calculator.

An FD calculator is a tool or a calculator that functions to calculate the returns on a fixed deposit using terms like the deposit amount, interest rate, and tenure of the fixed deposit. The calculator helps one to get an estimate of the maturity amount, and the interest that one will earn on the fixed deposit. The FD calculator can be used by the investor as per his or her convenience, at multiple online marketplaces. It can be used by following the below-mentioned process:

  • Visit an online FD calculator on any online marketplace.
  • Enter the details like the principal deposited amount, interest on which the FD provides, tenure of fixed deposit.
  • After entering the values mentioned above, click on the ‘calculate’ button, and the maturity amount and interest is reflected on the screen.

The interest rate on fixed deposit is calculated in two forms, simple interests and compound interests. The simple interest is calculated based on the principal amount (P) based on the rate of interest (r), and the tenure of deposits (t). It is calculated using the formula, SI=P*r*t/100. The compound interests, on the other hand, is the interests calculated on the principal amount and the interest earned. It is calculated based on estimates like principal (P), interest rate ( r ), and the period of the Fd, that is (t). The formula for the compound interest is A= P(1+r/n)^(n*t). Here A is the maturity amount.

An FD calculator offers a number of benefits. Out of all these, the best thing it can do for an investor is to help him plan his investments. Investing is an important financial decision; therefore, before making one, it is important that one is aware of the benefits that it can provide to the investor. Pre-calculating the maturity amount and interest on FD will help the investor make a wise choice with his or her funds. Also, it helps one to make a comparison between the different interest rates that different FD providers offer and thereby can help one in choosing the right lender.

In addition to these, an FD calculator gives an accurate result when it comes to calculating the returns. Since the calculator works on a mathematical algorithm, the chances of errors are less. The results are offered quickly and help one in saving time and efforts. The best aspect of these calculators is that these are available free of cost and can be used anywhere and at anyplace.

Summary:

A fixed deposit is an in-demand investment option, offered by various banks and financial institutions. The reason behind the popularity of fixed deposits is that they are considered comparatively safe and secure amongst all investment schemes. The best part about the fixed deposits is that they offer assured returns to the lenders. However, not many are aware of the calculations of returns that are offered on fixed deposits. The returns on fixed deposits can, however, be calculated using an FD calculator.

A fixed deposit calculator is an online tool that helps one calculate their FD returns, using components like rate of interest, FD tenure and FD deposited amount. The components are used to calculate the maturity amount that the depositor will get by the end of the Fd tenure. The FD calculator helps one to get an accurate FD amount, in no time without any expense.

However, it must be known to all FD depositors that the returns on fixed deposits are calculated based on two methods. These are the simple interest method and the compound interest rate. The simple interest is calculated using the principal amount (P), rate of interest (r), and the time period of the deposit (t)—the simple interest method functions on the formula, SI=P*r*t/100.

The compound interests method is the interests based on the principal amount and the interest earned on the fixed deposit. It is derived based on the components like the principal (P), interest rate ( r ), and the tenure of the FD (t). The formula to derive the compound interest is A= P(1+r/n)^(n*t) where A is the maturity amount earned on the fixed deposit.

Thus, returns on the fixed deposits can be calculated easily using the Fixed deposit calculator. Calculations based on Fixed deposits are accurate and devoid of any errors as they are based on mathematical algorithms.

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