How To Calculate Interest Rate When I Want Invest Into Fixed Deposit?

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A Fixed Deposit (FD) is a tax saving investment tool with guaranteed returns. Since it involves a lump sum amount for a deposit, every investor should check the yields, interest rates, and credibility of the bank or financial platform before investing. 

What are the benefits of investing in a Fixed deposit account or FD?

  • A viable investment with guaranteed returns
  • Unlike other investments like equity or shares, FD is secure, risk-free, and not market susceptible.
  • Under section 80 C of the Income-tax Act, investors can claim a tax deduction up to Rs 1.5 Lakhs from fixed deposits in a fiscal year
  • Many banking platforms also grant loans against fixed deposits. The interest rates are better than the interest rates of regular loans.
  • During an immediate financial crunch, investors can liquidate their fixed deposit. However, banks charge penalties for premature withdrawal.

How to determine the best FD plan?

 

  • Compare the FD rates offered

 

Avoid opting for lenders who provide low-interest rates. Choose platforms that offer the best FD rates, at least 7%, such as PNB Housing Ltd (FD rates up to 8.7%).

 

  • Review the credibility

 

FD involves putting in a lump sum amount. Hence ensure the reliability of the lender through ratings provided by agencies like CRISIL and ICRA.

 

  • Determine between cumulative and non-cumulative options

 

Investors should choose a plan based on whether they want periodic returns or interest at maturity. Non-cumulative option gives investor income based on the payment mode selected. Cumulative FD compound interest and offer them to the investor at maturity. However, the cumulative option gives investors a higher interest compared to the non-cumulative option

 

  • Choose a lender that has a simple documentation process

 

Application procedure varies from lender to lender. Hence investors are advised to choose financial platforms that have a simple documentation process for a hassle-free investment.

How to calculate FD interest and maturity amount?

The interest rates on Fixed Deposit (FD) are calculated based on interests and frequency of payouts. 

FD amount at maturity calculation formula is: A = P (1 + r/4/100) ^ (4*n) and A = P (1 + r/25)4n. 

Where A – amount at maturity

 P- principal

 R- rate of interest

 n- compounded interest rate frequency

Using FD calculator

FD calculators are great tools for calculating returns and plan investments. The inputs required are initial investment amount, tenure, and rate of interest to the FD calculator to receive the amount at maturity. 

Benefits of using FD calculator are :

  • High accuracy since it is an automatic calculator
  • Saves time and effort while performing cumbersome calculations involving multiple tenure, amount and rates
  • Most platforms offer an FD calculator for free usage. So investors can compare the different FD interest rates and thus make an informed decision.

 Factors affecting FD deposit rates

  • Tenure or period of the deposit for which the amount stays in FD account
  • Age of the applicant: Senior citizens often earn 0.25 % to 0.75% more than regular deposits
  •  Inflation and RBI repo rates can influence the FD interest rates offered by banks or financial platforms

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