A fixed deposit is among the most popular types of term investment and is widely preferred by individuals. The investment option is extended by several banks and non-banking financial institutions to their customers.
While fixed deposits accompany a higher interest rate, they are subject to specific terms and conditions. For instance, the deposited amount is typically locked in for a specified period ranging from several months to years. Individuals can choose the same based on their investment goals and make the most of a fixed deposit scheme. However, to make a more informed choice about their tenure and the interest that the depositor will accrue on maturity, they can use tools like a fixed deposit interest calculator.
That said, individuals must know how to access and use a fixed deposit interest calculator and use the same to plan their deposits better. On that note, let us learn more about the FD calculator.
What is a fixed deposit interest calculator?
Essentially, a fixed deposit interest calculator is a financial tool that is offered by leading banks and NBFCs and can be easily accessed through their online website.
The FD calculator comes with an in-built formula that allows users to compute the interest on their deposits and the total sum at maturity without manual calculations.
Users can access the financial tool when required to know how their choice of FD tenure and FD rate will affect their deposit amount and plan their investments accordingly.
To help you understand what makes the FD calculator so crucial, let’s look at the formula behind computing the FD maturity amounts and the steps involved.
Fixed deposit formula for the maturity amount
The FD formula depends on the type of fixed deposit account one holds. Typically, there are two distinct types of FD that an individual can open –
- Simple interest FD
- Compound interest FD
- The formula for simple interest FD
The formula used to compute the interest and the maturity amount of a simple interest FD is given below –
M = P + (P x r x t/100)
Here,
- P is the principal amount or deposit
- r is the interest rate per annum
- t is the tenure or time period in years
Example of simple interest FD calculation
For example, Raj deposits Rs. 1,00,000 for a tenure of 5 years at the rate of 10% interest. The amount he would receive at maturity is –
M = P + (P x r x t/100)
M= Rs. 1,00,000 + (1,00,000 x 10 x 5/100)
= Rs. 1,50,000
Raj would receive Rs. 1,50,000 at the end of 10 years from his FD account.
- The formula for compound interest FD
Here’s the formula used to determine the compound interest on a fixed deposit and the amount an FD depositor would receive at the end of the maturity period.
A = P (1+r/n) ^ (n * t)
Here,
A = Maturity amount
P = Principal amount
r = rate of interest expressed in decimal
n = number of compounding (yearly)
t = tenure or number of years
Example of compound interest on FD
Nidhi deposits a sum of Rs.10,000 into an FD account for a tenure of 3 years at a rate of 10% compounded quarterly. At the end of the maturity period, the amount she would receive is –
A = P (1+r/n) ^ (n * t)
A= Rs. 10,000 {1 + (0.1/4)} ^ (4 * 3)
A = Rs. 10,000 (1 + 0.025) ^ (12)
A = Rs. 10,000 (1.025) ^ (12)
= Rs. 13,449 (approx)
The maturity amount at the end of the deposit tenure is Rs.13,449, and the compound interest would be –
Since, Compound Interest = Maturity Amount – Principal
CI = 13,449 – 10,000
= Rs. 3,449
A fixed deposit calculator is fed with both simple and compound interest formulas. Users can select the type of FD on the tool to find the maturity and interest amount without going through these steps of calculations.
Features of a fixed deposit calculator
These are the features and associated benefits of a fixed deposit calculator –
Saves time: Usually, the steps involved in manually calculating a fixed deposit maturity amount make the process complex and time-consuming. Since an FD calculator eliminates the need to compute manually altogether, it helps users save time and energy.
Eliminates manual errors: Manual computations, especially those involving several steps and variables, are prone to silly mistakes. However, an FD calculator is designed to provide accurate results instantly once the key details are fed into it. This eliminates manual calculations and also the risk of making silly mistakes, thus providing a more accurate result.
Facilitates comparison: Fixed deposit calculators allow users to make multiple adjustments to the entered data. This allows users to compare the interest and maturity amounts against different tenures and helps them pick a plan that suits them the most. Users can also use the tool to compare the FD plans extended by different banks and NBFCs to make an informed choice about other FD schemes and their returns.
These features allow users to plan their finances accordingly and help them make the most of a fixed deposit scheme. However, one cannot use the tool to compute the returns of other financial plans. For instance, one can’t use an FD calculator to find the PPF maturity amount, they would need to use a PPF calculator to compute the same.
Steps to use fixed deposit interest calculator
Follow these steps to access and use the FD calculator –
Step 1: Visit the website of any reputed financial institution
Step 2: Look for a fixed deposit calculator
Step 3: Select the type of FD – simple or compound interest FD
Step 4: Enter variables like principal and tenure
Once the steps are covered, the maturity amount and interest on the fixed deposit will be displayed on the screen. Users can change the variables to see how the inputs affect their maturity amount.
Key benefits of FD calculator
These benefits make a fixed deposit calculator a helpful tool for financial planning –
- Allows individuals to know the final amount they would receive at the time of FD maturity
- The FD calculators are free and can be used by registered customers anytime.
- Users can make unlimited changes and decide which combination of tenure and principal amount works best for them.
- It helps to compare the maturity amount of different FD plans instantly.
