Fixed Deposit investment by far is considered the best mode of savings. This is because there is the surety of getting back the invested amount. Also, in it, there is cent percent guarantee of receiving the mentioned interest. The rate of return on these term deposits is predetermined and are stated by the banking institute at the time of booking. Once the deposit gets matured the initial amount and the interest accumulated are credited in the account of the customer. The return is calculated and rolled out either at the maturity or at the frequency determined by the customer. This interest amount can be calculated easily using a device called fixed deposit calculator.

FD Calculator is an online device designed to compute the maturity value of the deposit. It helps in calculating the interest receivable on the fixed deposit made for a certain period of time. It saves time and provides the realistic result. The user can find the future value of a fixed deposit by entering the FD interest rates, deposit amount and the period of investment in the fixed deposit calculator. The value displayed is calculated using the interest calculator formula which is:

A = P (1 + r/n) nt

I  = A – P

The fixed deposits interest rates is calculated using two methods. The simple interest method and the compound interest method.

Simple Interest Method – In this method, the interest is calculated on the initially deposited amount for the entire deposit period. The interest receivable remains same throughout the tenure of the period. The returns on such deposits are lower.

Compound Interest Method – Deposits yielding interest at compound interest give higher returns. As the amount of interest earned in the previous period is added to the initial principal and the new amount is taken into consideration for calculating the interest of next period. That is the principal amount keeps on changing during the tenure.

Comparison between interest calculated on fixed deposits using simple interest formula and compound interest formula:

To compare the earnings on fixed deposit yielded on simple interest and compound interest let’s take an example:

Example – A person makes a deposit of ₹ 20,000 for the period of 10 years. The interest on deposit is paid at the FD interest rate of 7.00% per annum. The interest earned on deposit at simple interest and compound interest is given below:

Simple Interest Method:

Deposit Amount -₹ 20,000

Tenure – 10 years

Interest Rate – 7.00% p.a.

Interest Amount – ₹ 14,000

Maturity Amount – ₹ 34,000

The simple interest is calculated using the below mentioned formula:

A = P (1 + rt)

Where:

A = Maturity Value

P = Principal Amount

I = Interest Amount

r = Rate of Interest per year in decimal

t = Time Period involved in months or years

Compound Interest Method:

Deposit Amount – ₹ 20,000

Tenure – 10 years

Interest Rate – 7.00% p.a.

Interest Amount – ₹ 20,031

Maturity Amount – ₹ 40,031

The compound interest is calculated using the formula:

A = P (1 + r/n) nt

Where,

A = the maturity value
P = the initial deposit amount
r =  the annual interest rate
n = the number of times that interest is compounded per year
t = the number of years

The above example shows that the compounded interest is higher than the simple interest. The bank decides the method of calculating interest on fixed deposits. The user can check the amount of interest receivable using the specific fixed deposits calculator.

Benefits of using Fixed Deposit Calculator

Accuracy- The highlight of fixed deposit calculator is the accuracy at which it computes both interest component and the sum of maturity. With a mere entry of the principal amount, the rate of interest, the period of deposit and compounding frequency, the calculator will flash out the expected maturity sum, including the interest portion.

Easy to Use– The function of the calculator is easy to understand. And when that happens, the calculation becomes simple. So, all your drains after seeing the complex formula will be over when you use the calculator.

Time-Saving- The calculator saves your time by eliminating the requirements of deriving the result that comes from a complex formula. The entry of variables, as stated earlier, will let you calculate the sum.

It becomes easy to calculate the returns on the investment using fixed deposit calculator and also the results are reliable. Therefore, to calculate the returns one must use the instrument made uniquely to compute the gain on deposits.

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