Introduction

A Fixed Deposit is a savings feature offered by banks and NBFCs to customers aiming to save for the long run. For instance, if you have rupees 10 lakh that you have as extra disposable income or wish to save, you could put it in a fixed deposit account. According to the clauses of fixed deposits, your money is locked in with a bank for a certain period of time that is agreed upon by the customer and bank, alongside an interest rate that lays out the financial return on the account.

The pros and cons of fixed deposits.

The greatest benefit of fixed deposits is the fact that customers receive guaranteed returns. Once the term and interest rate are finalized, the interest rate will not be affected by changes in the market and customers will receive assured returns. Additionally, fixed deposits offer higher interest rates to customers when compared to a savings account.

However, there are two things to keep in mind: The first is as mentioned, that your money is locked away for a period of time. The second is that, while fixed deposits might offer better interest rates than savings accounts, the rate of return pales in comparison to returns earned in the financial market such as stock, bonds, or mutual funds, among others, albeit these come with market risk.

You can use a fixed deposit calculator to assess all the facets of investing in a fixed deposit, and whether the returns are worth it for you.

What is a fixed deposit calculator and how does it work?

There are a number of things one must consider before investing in a fixed deposit. An FD calculator aides customers in calculating various aspects of their fixed deposits. Based on their initial investment and term duration, customers can use a fixed deposit calculator to assess their amount at maturity and the payout they receive, and employ an FD interest calculator to calculate the interest they would earn on their FD.

Most fixed online fixed deposit calculators and FD interest calculators will have fields including “initial amount” and “tenure” that the customer can fill out. Following this, the FD calculator will apply the rate of interest at the time (depending on the bank you are creating an FD with) and generate the “total interest earned” alongside the “maturity” amount, which is the sum of the initial amount and interest earned.

While online FD interest calculators provide customers with extensive facilities and features, it is not that difficult to understand how the calculator functions. The formula employed by an FD interest calculator is:

M= P {(1 + i/100)^ nt

Here, the “P” represents the customer’s principal amount, and “i” denotes the interest rate. T subsequently stands for “tenure” or the number of years for which your money will be compounded.  For instance, if you had 1 lakh rupees to put in a fixed deposit for 3 years, and the interest rate offered by your bank was 6.6%, compounded annually, then the formula would be as follows.

M = 100,000 (1 +6.6 / 100)^ 3

M therefore, = 1,21,136, where 21,163 is the interest you earned in 3 years at 6.6% on an initial investment of 100,000.

Benefits of an FD calculator

One of the biggest benefits a fixed deposit calculator offers is convenience. Customers can easily calculate their amount after maturity with a vast number of combinations with varying interest rates, principal amounts, and term durations.

Given that a fixed deposit is still a financial investment that has an opportunity cost attached to it, using an FD calculator to get a sense of the financial returns you’ll receive from such an investment, you can make a more informed decision. Therefore, with the use of an FD interest calculator, you can assess and compare the returns you would receive on other investment opportunities with that of a fixed deposit, and assess whether it is in fact the best investment option for you.

Conclusion

An FD calculator is a handy tool not only for those looking at investing exclusively in fixed deposits (something experienced traders would always advise against and instead recommend maintaining a fairly diverse portfolio to minimize the risk) but also for other investing cruising through their potential investment options. Customers can easily calculate the various interest rates and interest payments they would receive via an FD interest calculator and assess whether a fixed deposit is the best investment for them, given their financial goals.