How is the monthly interest rate calculated on standard
Fixed deposit is the safest investment option that helps you earn the pre-determined rate of interest for the entire investment period. Suitable for retired individuals, fixed deposits promise assured returns on your investment. Also by investing in a fixed deposit, you can earn higher interest on the total amount than depositing your money in the savings account.
How to calculate the fixed deposit interest rate?
The interest rate on fixed deposits varies according to the maturity like medium term deposits generally earning higher interest rates. Another thing to note is that every bank offers different interest rates on FDs. Most of the banks provide 0.5% higher fixed deposit interest rates for senior citizens.
The interest paid on a fixed deposit is either monthly or annually according to the choice of the investor. So, for example, you invest 3 lacs in the fixed deposit which pays 8% interest, then the interest you earn monthly and quarterly will be Rs. 2000/- and Rs 6000/- respectively.
Understanding the concept of effective returns on fixed deposits
Fixed deposits can also get you effective returns. Remember, it is not the interest you get on your FDs however it is the money you can get by reinvesting your interest every year, which means you will be earning compound interest. Let’s suppose, you invest Rs 1000/- in your fixed deposits with 8% interest rate that is paid quarterly. After 3 months you will earn an interest of Rs. 20/- on this amount which is reinvested and continues to earn interest in the remaining three-quarters. Similarly, at the end of 6 months and 9 months, you earn an interest and reinvest it. Thus as the end of the year because of compound interest, you will receive Rs 1,082.4. Meaning you will get an effective return is 8.24% instead of 8%.
FD calculators – How it can help you calculate the fixed deposit interest rate
An FD calculator is an online tool with which you can find out the maturity amount and the interest you earned from your FDs. There are many websites both the official bank websites and other web portals that allow you to calculate the fixed deposit interest rate using FD calculators To use the FD calculator, you have to keep the following information handy:
1. The amount you want to invest in fixed deposit
2. The rate of interest paid by the bank for the period
3. Confirm if the interest is compounded yearly, quarterly, monthly or half yearly. (Getting this number right is important as it will help you understand the number of times the interest is compounded. Monthly – 12, half yearly -2, yearly- 1 and quarterly- 4)
4. The total time period you have invested the money in your fixed deposit account.
FD calculators are free of cost and you can make as many searches you want without worrying about it being exhausted.
Apart from using the FD calculators, you can also calculate the fixed deposit interest rate manually by using the following method/formula:
A = P (1 + r/n) nt
A = the maturity amount you will receive
P = It is the initial investment or the principal amount
R= Annual rate of interest.
n = the number of times interest is compounded. For monthly compounding, n will be 12
t = Total time period of investment
All banks use the same formula to calculate the fixed deposit interest rate. Generally, fixed deposit calculators calculate interest compounded quarterly. But some FD calculators also perform compounding of interest on monthly basis. So it is good to know this detail in advance to fetch accurate results.