Fixed
deposits are a great way to invest your funds, especially on a long-term basis.
They also offer a great protecting against the volatile conditions of the financial
market. With this termed deposit, you can invest a fixed amount and earn a
return on the investment. Depending on the amount you wish to invest, you can
easily earn a return on investment depending on the tenure.
However,
you can earn an interest on your fixed deposit through two types. You can
either opt for the simple interest method or the compound interest method.
Given below are the details of the difference between these two types:
Simple
Interest fixed deposit:
Simple
interest is best for those who want to earn a small amount, and use it for any
financial requirements at a fixed time. This is best for those who want to
invest their funds, and yet have some access to using it. although the
investment tenure is fixed, you will still have access to the interest that is
earned and deposited at the ROI tenure.
Under
the simple interest method, your interest is calculated on the initial deposit
amount or the principal amount. However, in most cases, the interest amount
will mostly calculate on the principal amount. Most of the interest rates are
calculated on a quarterly, half-yearly or annually basis. You can use the fixeddeposit calculator to get the ideal amount that will suit your needs.
Compound
Interest fixed deposit:
Compound
interest, also known as the reinvestment option is great for maximizing returns
on a long term basis. This also works well for those who would want to invest
for a fixed yet long period of time In this case, the longer the deposit
period, the better will be the returns on reinvestment. Reinvestments
under this scheme provide a higher return, especially for those who prioritize
liquidity. This is also the best solution for long term deposits.
In
the compound interest method, the interest is calculated on the principal and
the interest that earned at each maturity period. With the interest that is
earned in this form, the compounded outcome is much higher. This is because the
interest that is earned is added to the principal amount. Thus, this becomes
the basis of the interest calculation. To know how much you can earn with each
compounding interest, you can always use the fixed deposit calculator to get
the amount required. However, the compounding interest will differ in the
different FD schemes offered by the institute. Normally, a bank or financial
institute will offer scheme frequencies that are quarterly, half-yearly or
annually.
