Fixed Deposit (FDs) are an investment option that provide stable and guaranteed returns. When you invest in an FD, you deposit a lump sum amount with a bank or financial institution for a specific tenure, ranging from seven days to 10 years. The financial institution pays a fixed rate of interest on the deposited amount and returns the principal and interest earned at maturity.
Calculating the returns on FDs is important to determine the maturity amount you will receive on your investment. This article provides a step-by-step guide on how to calculate fixed Deposit returns.
Table of Contents
Determine the investment amount
The first step is to finalize the investment amount, also known as the principal amount. You can invest as low as ₹10,000 to book an FD. However, higher principal amounts fetch higher interest earnings. Decide an investment amount based on your financial goals and liquidity needs.
Select the FD tenure
Fixed deposits are available for tenure ranging from seven days to 10 years. Short-term FDs have tenures up to one year, while long-term FDs have tenures above one year. The tenure impacts the applicable interest rate – longer tenures usually have higher rates. Choose a suitable tenure that is aligned with your financial goals. If your goal is short-term, opt for an FD tenure of up to one year. For long-term goals, choose tenures above a year.
Identify the applicable interest rate
FD interest rates vary across banks and tenures. Rates are higher for senior citizens compared to other investors. Once you have decided on the investment amount and tenure, identify the applicable FD interest rate offered by the bank you wish to invest with. Compare interest rates across banks to find the best rate for your selected tenure.
Understand the compounding frequency
FD interest can be compounded annually, half-yearly, quarterly, or monthly. The compounding benefit accrues when interest earned is reinvested to earn additional interest. Quarterly and monthly compounding provides higher returns compared to annual or half-yearly. Opt for the highest compounding frequency to maximise returns on FD.
Use the FD interest formula
The next step is to use the FD interest formula to calculate the maturity amount.
Total maturity amount = Principal amount x (1 + Annual interest rate/Number of compounding periods per year) Compounding periods per year x tenure in years
For example, if you invest 1 lakh for three years at 7% p.a. interest compounded quarterly, the maturity amount is calculated as:
= 1,00,000 x (1 + 7/4%)4 x 3
= ₹1,22,978
Use an online FD calculator
To eliminate complex calculations, use an online FD calculator available on bank websites or financial portals. Input the investment amount, tenure, interest rate and compounding frequency to automatically calculate FD returns and the maturity amount. FD calculators provide quick and error-free calculations, making the process of determining your returns and planning easier.
Choose the bank and book the FD
The final step is to choose the bank of your choice and book the FD. IndusInd Bank is an ideal option here. With IndusInd Bank, you can book your FD in just three simple steps and earn best-in-class interest rates! All you need to do is keep your Aadhaar and PAN details handy. The process of booking an FD with IndusInd Bank is 100% digital and paperless. The bank offers a user-friendly online platform, making it convenient for you to open an FD account from the comfort of your home or office.
Conclusion
Calculating FD returns is vital to estimate earnings. First, decide the investment amount and pick a suitable tenure. Identify the applicable interest rate offered and understand the compounding frequency to maximise gains. Make sure to use an online FD calculator to seamlessly calculate your investment returns and plan accordingly.