A fixed deposit is one of the most popular forms of investment today. It is easy to set up a fixed deposit both online as well as offline. Most people only find out the interest that they will earn on the fixed deposit once the fixed deposit has been created. Lenders indicate the maturity value of the fixed deposit on the FD advice.
There are two ways to calculate the fixed deposit interest:
• Use a fixed deposit calculator:
An FD calculator uses the following inputs to calculate the maturity value and the interest earned:
o Principal amount
o Rate of interest
o Tenure
Most fixed deposit calculators also consider other factors such as the interest payout on the fixed deposit. For example, if the depositor selects the reinvestment method for interest, then the interest is capitalised periodically, thus compounding the interest. On the other hand, for other interest options, i.e. monthly payout, quarterly payout, maturity payout, the interest is calculated using the simple interest formula. Typically, reinvestment of interest leads to a marginally higher interest earning as compared to other modes.
After you input these three values, the FD calculator gives you the maturity value of the fixed deposit along with the interest breakup. Some calculators even give you the financial year breakup of interest, clearly showing the interval at which the interest is capitalised.
• Manual calculations:
Fixed deposit interest can be calculated using the simple interest formula for every option except for reinvestment of interest. The simple interest formula is:
Interest = Principal x Rate of Interest x Tenure
Lenders generally calculate the interest on a fixed deposit on a daily or monthly basis. So, using this formula will lead to an approximate figure very close to the actual amount of interest earned on the fixed deposit.
For reinvestment of interest, manual calculations can get a little complicated since the reinvestment depends on the lender and business practices may change. However, unless the principal amount is enormous, using the simple interest formula gives an approximate value of the interest earned, even for the reinvestment option.
However, using an FD interest calculator is very helpful since it can accurately tell you the interest earned. By using this tool, you can find out your earnings in advance and choose between investing in a fixed deposit or deploying funds elsewhere. An FD interest calculator is an extremely simple tool to use and is freely available online especially on lenders websites.
There are two ways to calculate the fixed deposit interest:
• Use a fixed deposit calculator:
An FD calculator uses the following inputs to calculate the maturity value and the interest earned:
o Principal amount
o Rate of interest
o Tenure
Most fixed deposit calculators also consider other factors such as the interest payout on the fixed deposit. For example, if the depositor selects the reinvestment method for interest, then the interest is capitalised periodically, thus compounding the interest. On the other hand, for other interest options, i.e. monthly payout, quarterly payout, maturity payout, the interest is calculated using the simple interest formula. Typically, reinvestment of interest leads to a marginally higher interest earning as compared to other modes.
After you input these three values, the FD calculator gives you the maturity value of the fixed deposit along with the interest breakup. Some calculators even give you the financial year breakup of interest, clearly showing the interval at which the interest is capitalised.
• Manual calculations:
Fixed deposit interest can be calculated using the simple interest formula for every option except for reinvestment of interest. The simple interest formula is:
Interest = Principal x Rate of Interest x Tenure
Lenders generally calculate the interest on a fixed deposit on a daily or monthly basis. So, using this formula will lead to an approximate figure very close to the actual amount of interest earned on the fixed deposit.
For reinvestment of interest, manual calculations can get a little complicated since the reinvestment depends on the lender and business practices may change. However, unless the principal amount is enormous, using the simple interest formula gives an approximate value of the interest earned, even for the reinvestment option.
However, using an FD interest calculator is very helpful since it can accurately tell you the interest earned. By using this tool, you can find out your earnings in advance and choose between investing in a fixed deposit or deploying funds elsewhere. An FD interest calculator is an extremely simple tool to use and is freely available online especially on lenders websites.
No comments:
Post a Comment