FD Calculator — Fixed Deposit Calculator

FD calculator determines the maturity value of your fixed deposit amount. A fixed deposit gives you an almost risk-free, insured, and guaranteed return on your deposited amount. It is a safe investment option, better than a regular savings account for conservative investors. You can use the FD calculator to find out or compare different rates for maturity amount, earned interest, and payouts.

On a side note, you can also refer to our yield to maturity calculator for finding the rate of return that an investor can expect on a bond.

To reap the full benefit of a fixed deposit, you must understand how it works and how the fixed deposit rates get calculated in this FD calculator. By the end of this article, you'll learn what a fixed deposit is to make an informed decision before committing to an investment.

Another risk-free investment solution that can generate steady income for you is the post office monthly income scheme.

A fixed deposit (FD) is a type of investment account in which you invest a specific amount of money at a fixed interest rate and term. Based on your instructions, at the end of the agreed period (term), the investment can either be rolled over (reinvested) or liquidated (returned to you) with the interest amount earned.

The financial institution or bank calculates your earned interest cumulatively monthly, quarterly, or annually, depending on how the interest compounds. Your financial provider may require you to open a new account for the FD or allow you to 'fix' the money in an existing account you own. Then you can decide whether to withdraw the interest earned as regular payouts or you can reinvest it to compound your returns.

The term or period for a fixed deposit can vary between 30 days and 10 years, with interest rates ranging between 3% and 11%. Although the interest rates on fixed deposits are low compared to most investment vehicles, the returns are almost risk-free and much better than a regular savings account. Using the FD calculator as an FD rate calculator by inputting different interest rate values shows that the longer the term, the more accruing interest. Besides, the longer you fix your money, the higher the interest rate the banks will offer. Some financial institutions and banks even offer a 7-day FD at a considerable rate.

For example, a financial provider in India can offer a three-month fixed deposit with interest at 2.3%, and it goes up to 10% for a year. So, a ₹100,000 investment for three months earns you interest of ₹2,300 on your principal. In comparison, you'll earn ₹10,000 if you fix the same amount for a year. You can increase your interest if you increase your investment by another ₹100,000: ₹200,000 x 2.3% = ₹4,600.

Hence, you'll enjoy a higher interest rate and return with a longer-term and or a higher deposit amount.

We also have a risk calculator to help you choose between two options of investments based on the risk factor.

Other ways you can improve your return is by:

• Rolling over your original principal after the FD matures. The interest from your FD account is directly credited into your savings account by the bank.

• Roll over the principal and interest. The original principal and the accrued interest are reinvested for the same term and interest rate applicable to maturity. That accumulates or compounds your investment.

• Shop for a better interest rate. Ensure you compare the rates from at least three financial providers before settling. The higher the interest rate, the higher your interest yields.

• Compounding frequency of interest. Your claim can be compounded monthly, quarterly, semi-annually, or annually. Make inquiries about how your financial provider compounds your interest because it affects your return and periodic payouts.

• Type of fixed deposit. Financial providers offer two types of FD accounts, which dictate how your interest gets invested.

• Cumulative: Most financial institutions only allow you to compound your investment if your fixed deposit is for at least 90 days (3 months). When you invest in a cumulative fixed deposit, your interest is compounded annually and paid at maturity.

  Some banks may allow you to withdraw your interests at the end of every compounding period – monthly, quarterly, semi-annually, or at the end of the term.

• Simple: If you choose a fixed deposit term below 90 days, the banks will usually calculate your interest based on the principal amount of your investment alone. When you invest in a simple fixed deposit, you can withdraw your accrued interest as payouts periodically.

If you can't wait out your fixed deposit term, you can terminate it before it matures. But you will have to forego some of the accrued interest in your account or incur a penalty. You will also need to pay taxes on the interest earned during a financial year.

You might find our simple interest calculator and compound interest calculator interesting and informative, in case you are looking to learn about interests and how to calculate them.

How to calculate interest on FD formula depends on the type of FD account

The interest earned on a simple fixed deposit is calculated as simple interest with the formula:

matured amount = principal × (1 + (rate × term))

How to calculate compound interest on FD requires a little more advanced formula

The interest earned on cumulative fixed deposit is compounded. That is, the interest earned during the previous compounding period is added to the principal for calculation of interest using the formula:

matured amount = principal × (1 + rate / compounding frequency) ^ (compounding frequency × term)

Benefits

• FD is a very safe, stable, and predictable mode of investment.
• It provides a higher interest rate than a regular savings account.
• You can terminate FD in case of an emergency.
• No limitation to how many FDs you can own.
• The interest rate for FDs is fixed when opening the deposit and remains free of inflation.
• Some financial providers offer preferential interest rates to senior citizens.
• You can take loans against your FD amount.
• Some banks offer a minimum term of as few as seven days.

Limitations

• You'll earn less interest and may pay the penalty if you make a withdrawal before your FD matures.
• At the end of the term, you may have earned less than expected after adjusting for inflation. Other investment options, like mutual funds, may offer better inflation-adjusted returns.
• You pay tax on your earnings, which reduces your return.
• FD is best for wealth preservation. It is not a suitable investment vehicle for long-term wealth creation or investors with a high-risk appetite.
• The minimum amount to open a fixed deposit in some financial institutions may be too high to consider.