Investing in fixed deposits (FDs) is common among salaried people. Apart from these investments being conventional, it is the promise of fixed returns that prompt an increasing number of people to invest in them.
Estimating FD Maturity Amount
Some lenders offer best Fixed Deposit rates compared to what the rest of the industry gives to its customers. Senior citizens earn higher interest rates on their FD investments. For example, PNB housing offers FD rates up to 8.70% higher interest rates help beat the inflation, the stability of returns instils in intended depositors, the much-needed confidence needed to make regular investments in FDs.
Before opening an FD account, it is important to gauge the returns that one can earn at a given interest rate. Considering that most lenders have an FD Calculator on their sites, depositors can easily find out the estimated maturity amount that they can earn on their investments made. Intended investors must simply fill in details of the deposit amount, rate of interest and deposit term to calculate the deposit value on maturity. Also called the Compound Interest Calculator, one can ascertain the value of the invested amount on maturity after taking into consideration the interest compounding frequency, i.e., monthly, quarterly, half-yearly or annually.
For example, the deposit amount is Rs. 5 lakhs with the deposit tenure equivalent to five years. The corresponding interest rate is 8.45 per cent while compounding is done only once in a year. Putting in place all these given details in the FD Calculator lends an estimated maturity amount equal to Rs. 750098.
Calculating Interest on FDs
The interest earned on any FD depends a lot on the nature of payout. FD available in the market currently are of two types – periodic interest payout and cumulative deposit.
- Periodic Interest Payout: Choosing this option allows the depositor to earn a fixed amount of interest at the end of every quarter. The interest amount would continue to be the same throughout the FD tenure. The depositor will have access to the principal amount that would be repaid at the end of the tenure.
- Cumulative Deposit: The compounding effect can be seen and earned effectively in this kind of deposit. The interest earned on the principal gets re-invested as per the Compound Interest method, thus, allowing investors to earn a higher amount of interest on the deposit amount at the end of the maturity period.
Before allocating a portion of your savings to FDs, remember that the deposit amount must not be less than Rs. 1000. The interest rates are not fixed and vary according to the deposit tenure. The length of deposit tenure ranges between a week and 10 years. The interest earned depends a lot on the compounding frequency. Higher the number of frequencies in a year, the greater is the maturity amount earned on the FD.
The interest earned on the FDs is taxed as per the tax slab applicable in that assessment year. Premature withdrawal of the FD is allowed though it incurs some penalty on the maturity amount. The penalty amount is nominal and varies between lending institutions.