fbpx
Connect with us

Finance

What Is The Calculation Process Of Fixed Deposit

Published

on

What is the calculation process of fixed deposit?

Fixed deposits are considered to be one of the most sought-after investment options of people across the world as it is regarded as one of the safest instruments through which one can earn a fixed monthly or quarterly income, and that too at attractive interest rates. Fixed deposits also carry a cumulative interest option, where the investor gets the accumulated interest at the end of the tenure. As these financial instruments are not affected by market fluctuations, there is a relatively low-risk factor in these investments.

How much returns can one expect by investing in fixed deposits?

The returns as the name suggests are fixed, and the interest is generated throughout the tenure of the fixed deposit. For example, if you lock your investment in a fixed deposit with a tenure of 3 years, you will earn the interest at a fixed rate till the end of the tenure. Fixed deposit interest rates are changed at regular intervals by the Reserve Bank of India (RBI) which is referred to as the base rate. Banks or NBFCs decide on their fixed deposit rates above the RBI-approved base rate. Senior citizens are offered slightly higher interest rates than others.

How are returns on fixed deposits calculated?

There are two types of fixed deposits that financial institutions offer – Simple interest FD and Compound interest FD. You can take the help of an online FD calculator which can give you the exact amount by entering the desired numbers.

The fixed deposit calculator for simple interest uses the below-given formula:

M = P + (P x r x t/100)

Here,

P is the principal amount that you deposit

r is the rate of interest per annum

t is the tenure in years

For example, if you deposit a sum of Rs. 1,00,000 for 5 years at 10% interest, the equation reads –

M= Rs. 1,00,000 + (1,00,000 x 10 x 5/100)

= Rs. 1,50,000

For compound interest FD, the FD return calculator uses the following formula –

M= P + P {(1 + i/100) t – 1}

Here,

P is the principal amount

i is the rate of interest per period 

t is the tenure

For example, if you take the same variables, the compound interest FD will accrue,

M= Rs. 1,00,000 {(1 + 10/100) 5-1}

Or, Rs. 1,61,051

One point to be noted here is that fixed deposits attract tax. Secondly, if your goal is to create a corpus, you should opt for cumulative fixed deposits and if you are looking to earn a regular monthly or quarterly interest that gives you a fixed source of income, non-cumulative deposits are the best option.

 

#

US Army Combat Veteran turned writer helps people reach new levels of success and influence with personal brand building. Luis also writes for Entrepreneur magazine and runs TEDx events and TED circles online. Mentored by Mark Cuban his eye for business and potential growth has been trained at a billionaire level.

Become A Crypto Expert

Categories

Recent Stories

Trending


Copyright © 2022 Disrupt ™ Magazine is a Minority Owned Privately Held Company - Disrupt ™ was founder by Puerto Rican serial entrepreneur and philanthropist Tony Delgado who is on a mission to transform Latin America using the power of education and entrepreneurship.

Disrupt ™ Magazine
151 Calle San Francisco
Suite 200
San Juan, Puerto Rico, 00901

Opinions expressed by Disrupt Contributors are their own. Disrupt Magazine invites voices from many diverse walks of life to share their perspectives on our contributor platform. We are big believers in freedom of speech and while we do enforce our community guidelines, we do not actively censor stories on our platform because we want to give our contributors the freedom to express their opinions. Articles are not commissioned by our editorial team, and opinions expressed by our community contributors do not reflect the opinions of Disrupt or its employees.
We are committed to fighting the spread of misinformation online so if you feel an article on our platform goes against our community guidelines or contains false information, we do encourage you to report it. We need your help to fight the spread of misinformation. For more information please visit our Contributor Guidelines available here.


Disrupt ™ is the voice of latino entrepreneurs around the world. We are part of a movement to increase diversity in the technology industry and we are focused on using entrepreneurship to grow new economies in underserved communities both here in Puerto Rico and throughout Latin America. We enable millennials to become what they want to become in life by learning new skills and leveraging the power of the digital economy. We are living proof that all you need to succeed in this new economy is a landing page and a dream. Disrupt tells the stories of the world top entrepreneurs, developers, creators, and digital marketers and help empower them to teach others the skills they used to grow their careers, chase their passions and create financial freedom for themselves, their families, and their lives, all while living out their true purpose. We recognize the fact that most young people are opting to skip college in exchange for entrepreneurship and real-life experience. Disrupt Magazine was designed to give the world a taste of that.