June 25, 2024
Finance

How To Calculate Interest On Fixed Deposits In 2022?

Fixed deposits are a safe haven for your hard-earned and valuable savings among the several investment avenues available in India. Fixed deposits (FD) give guaranteed returns that remain unfazed by market fluctuations and economic conditions. 

As an investor, you must know how interest is calculated on your fixed deposits. It will help you compare different FDs with varying tenures and FD interest rates to choose the best option for your funds.

Financial institutions use two different methods to calculate the interest payouts on fixed deposits. These are the simple and compound interest methods of calculating the FD interest. 

The bank chooses the calculation method based on the tenure of your fixed deposit and the amount you invest in it. 

Let us understand the calculation of both these methods and see how you can simplify the calculation using a fixed deposit calculator.

Simple Interest Method

This is the easiest method to calculate interest on the original amount. The formula for this method is given below:

Simple interest = Principal amount invested x rate of interest applicable x tenure of the FD / 100

(SI = P x R x T / 100)

Let us understand this formula with the help of an example.

Suppose an investor invests an amount of Rs. 10,000. The tenure of this investment is five years, and the bank will pay an interest rate of 8% per annum.

The calculation for finding out the simple interest will be:

SI = (10,000 x 8 x 5) / 100

Therefore, the interest the investor earns on Rs.4,000 from his investment and the total amount will be Rs.14,000.

Compound Interest Method

Some banks offer compound interest on the principal amount. If you invest an amount of Rs. 10,000 for five years at a fixed deposit interest rate of 8% per year, and the interest compounds annually, 

For The First Year:

Interest = 10,000 x 8 x 1 / 100

Interest = Rs. 800

Now, the bank adds this interest to the principal amount and the new principal amount for the second year becomes Rs. 10,800.

For The Second Year:

Interest = 10,800 x 8 x 1 / 100

Interest = Rs. 864

This interest is again added to the principal amount and the new principal amount for the third year becomes Rs. 11,644.

You can keep adding the interest this way to find your returns or use the compound interest formula for quick calculation.

Compound interest = P {(1 + i/100)n – 1}

Here, P is the principal amount you want to invest in the FD, i is the FD interest rate, and n is the number of years you want to invest the funds.

For the above example,

CI = 10,000 {(1+8/100)5 – 1} = Rs 4,693

Therefore, the total amount the investor will receive at the end of 5 years using the compound interest method will be Rs. 14,693.

Using the Fixed Deposit Calculator

To avoid doing these calculations manually, you can use the fixed deposit calculator available on the website of RBL Bank Ltd. Input the principal amount you want to invest, the interest rate offered by the bank, and the tenure of your choice, and get 100% accurate and instant information on your FD returns. There are multiple advantages of using an online fixed deposit calculator.

  • The calculator gives accurate results and tells exactly how much you will receive at the end of the FD tenure. This helps you decide the right amount to invest for the desired maturity returns.
  • You can input different FD interest rates and calculate the returns to choose the best option for your funds.
  • You can compare different maturity amounts and make good choices on FD renewals.

Fixed deposit calculators make interest calculations easy, accurate, and quick.

Devendra

Devendra Singh is a Digital Marketing expert and also a blogger. He has experience in the content marketing on different verticals and operates his guest blogging website https://globalbloghub.com/