A fixed deposit calculator is designed to help users understand how much returns they would earn from different FD schemes. Using an online fixed deposit calculator one can easily determine the merit of the savings scheme and find out if the same would be lucrative for their investment plan. However, using the same with ease depends on how familiar one is with the tool.
On that note, continue reading below to gain an insight into the fixed deposit calculator, its usage, and its benefits in brief.
How to Compute Fixed Deposit?
One can always compute the fixed deposit maturity amount and interest manually. However, the manual process is time-consuming and prone to calculation errors owing to the lengthy process and the involvement of several steps.
Collectively, these make the process cumbersome and often provide inaccurate results. This is why it is a smarter move to opt for the use of an online fixed deposit calculator.
Such a tool is designed to keep calculations simple and accurate. Above all, it displays results immediately after feeding it with key data, making it more valuable for users.
Fixed Deposit Calculator Formula
Note that an FD interest calculator comes with an inbuilt formula that simplifies multi-step calculation to offer information on maturity value and interest amount.
Typically, the inbuilt formulas are set in when users select a particular interest type on the calculator.
There are two different methods of computing FD interest and they are based on the fixed deposit type.
Simple Interest Fixed Deposit
The calculator uses this simple interest formula
SI = P x R x T / 100
In this formula,
SI stands for simple interest
P stands for principal amount
R stands for rate of interest
T stands for FD tenure
Example of FD Simple Interest Calculation
Raj opens a fixed deposit account with Rs. 15,000 for a 5-year period at 10% p.a. Using the simple interest formula we find that –
SI = P x R x T / 100
= 5,000 x 10 x 5 / 100
Raj will get Rs. 22,500 (Rs.15,000 + Rs. 7,500) as a maturity amount after 5 years.
Compound Interest Fixed Deposit
The FD calculator uses this formula for fixed deposits with compounding interest –A = P (1+r/n) ^ (n*t)
In this formula,
A stands for the maturity amount
P stands for the principal amount
r stands for interest rate
n stands for the frequency of compounding in one year
t stands for the investment period
Example of Compounding Fixed Deposit
Prachi opens a fixed deposit account with Rs. 10,000 for 3 years at 10% compounded quarterly. Using the FD calculator we find –
A = P (1+r/n) ^ (n*t)
A = 10,000 [1+ (0.10/4)] ^ (4*3)
A = 10,000 (1 + 0.025) ^ (12)
A = 10,000 (1.025) ^ (12)
A = ₹13,449
Prachi will receive around Rs. 13449 at the end of 3 years.
How to Use a Fixed Deposit Calculator?
Using a fixed deposit calculator is quite simple due to its user-friendly interface and quick access online.
The calculator is designed in a way that will allow users to determine fixed deposit information by simply entering a few information.
For example, a leading fixed deposit calculator would typically ask the user to enter this information:
- Type of customer – senior citizen or normal citizen
- Type of Fixed Deposit Scheme
- Date of starting Fixed Deposit
- Amount of deposit
Once all the required information is provided the result breaking down the maturity value, interest amount, and prevailing interest rate will appear on the screen.
One must note that key details such as the type of customer and type of fixed deposit scheme tend to impact maturity amount and returns significantly.
To elaborate, the fixed deposit interest rate for senior citizens and regular citizens tends to vary. Most leading financial institutions offer a higher rate of interest to senior citizens, allowing them to build a robust corpus for retirement.
On the other hand, based on the type of FD scheme like tax saver or short-term fixed deposit account, the individual avails the chance to save on their taxes. Typically, the 5-year tax saving fixed deposit entitles holders to tax benefits under Section 80C of the Income Tax of India Act.
This makes it crucial for individuals to select variables carefully when using the calculator, as their choice would affect the result significantly. Inaccurate results will hamper their financial planning and fixed deposit strategies.
How Can One Benefit from a Fixed Deposit Calculator?
Using an online fixed deposit calculator can help users in these ways –
Easy to use
Using a fixed deposit calculator is easier than working on a mathematical formula when it comes to determining the maturity amount. Users can access the financial tool on the website of a reputed bank Or NBFC and try it.
They can determine the fixed deposit maturity amount with the help of the calculator by entering key details such as principal amount, tenure, customer type, and compounding frequency.
Know the FD maturity value
The tool allows prospective fixed deposit account holders to determine whether their choice of FD scheme will help them meet their goals or not. It offers a clear insight into the estimated maturity amount and helps compare if the amount matches their expectations.
Online fixed deposit calculators rescue users from the need to calculate interest and maturity amount manually. This helps eliminate the risk of miscalculation that is common in complex calculations and provides accurate results immediately.
Compare FD plans
The interest rates on fixed deposit schemes may vary among financial institutions. Using a fixed deposit calculator individuals can easily compare the returns of different leading NBFCs and banks to pick the most lucrative one. They can also gauge the merit of different fixed deposit types and the effect of compounding frequency on deposits with the help of a calculator and compare their expected performance within minutes. However, the financial tool will not come in handy in checking the prevailing inflation rate or CIBIL credit score of the user and would have other tools to check the same.
Hence, in these ways, a fixed deposit calculator can prove useful for users and help them plan their FD investment smartly. However, prospective fixed deposit holders should not base their decision entirely on the returns and must also weigh in factors like lock-in period, premature withdrawal charges, etc., before selecting a particular FD scheme.