Principal Amount

1 lac

2 Cr

INR

Tenure

6 Months

36 Months

Months

Interest Rate

1%

21%

%

Compounding Frequency

Invested Amount

Rs.

1,00,000

Wealth Gains

Rs.

501

Maturity Amount

Rs.

1,00,501

## Fixed deposit calculator

Fixed deposit schemes have been preferred means of growing money safely. The interest rates on fixed deposits are low as compared to other means of investments but returns are almost risk free. The bank fixed deposit schemes are considered safer than the company fixed deposit schemes. Recently the bank fixed deposit schemes have received government fillip in the form of greater insurance. Earlier the insurance of bank fixed deposit in a single bank was Rs 1 lakh by DICGC, an RBI arm. The latest budget has announced increase in the insurance amount to Rs 5 lakh.

Hence if depositors have more than Rs 5 lakhs to invest in fixed deposits, it makes sense to have multiple bank accounts. Having multiple accounts in one bank would still insure the fixed deposit up to Rs 5 lakh only. By investing in different banks investor gets advantage of insurance up to Rs 5 lakhs from each bank.

## Fixed deposit calculator formula

Fixed deposit amount and interest calculations are based on formula of compounding. Banks, companies, financial institutions may apply the compounding formula differently. The fixed deposit interest rate mentioned by banks is the annualized rate of interest.  The interest earned can be either paid out monthly or reinvested along with the principle amount as per the choice of the depositor. Interest that gets re invested earn interest at the same rate as the principle amount.

The formula for calculation of final amount applying compound rate of interest is

A=P [1+(r/12)/100)]n

Where:

1. A: is the amount at the end of the investing period
2. P: is the principle amount invested at the beginning of the investing period
3. R: annualized rate of interest, for example 6, 6.5, 7
4. n: is the tenure of investment

Since banks apply annualized rates of interest, r gets altered pro rata for investment tenures less than a year.

The formula for calculating interest will be A-P or simply the final amount at the end of investment tenure less the amount invested at the start of investment tenure.

## Amount and interest calculation for fixed deposits

Online fixed deposit calculators apply the compounding formula month wise. Some fixed deposit schemes may apply week wise or even day wise compounding formula. Let us see how the calculator works for month wise compounding at annualized rates of interest, considering aroi to be 8%, principle amount Rs 1 lakh.

 Principal amount (P) Annualized rate of interest pro rata month wise n= the month Formula applied Amount (A) Interest (I)(A-P) 1,00,000 8/12 1 1,00,000[1+(8/12)/100]1 100666.66 666.66 100666.66 8/12 2 100666.66[1+(8/12)/100]1 101337.77 671.11 101337.77 8/12 3 101337.77[1+(8/12)/100]1 102013.35 675.58 102013.35 8/12 4 102013.35[1+(8/12)/100]1 102693.43 680.08 102693.43 8/12 5 102693.43[1+(8/12)/100]1 103378.05 684.62 103378.05 8/12 6 103378.05[1+(8/12)/100]1 104067.23 689.18 104067.23 8/12 7 104067.23[1+(8/12)/100]1 104760.78 693.55 104760.78 8/12 8 104760.78[1+(8/12)/100]1 105459.18 698.40 105459.18 8/12 9 105459.18[1+(8/12)/100]1 106162.24 703.06 106162.24 8/12 10 106162.24[1+(8/12)/100]1 106869.98 707.74 106869.98 8/12 11 106869.98[1+(8/12)/100]1 107582.44 712.46 107582.44 8/12 12 107582.44[1+(8/12)/100]1 108299.65 717.21

Note if we apply instead the cumulative formula in one step for 12 months we will get same result as obtained at the end of 12 months

A=1,00,000[1+(8/12)/100]12

If we can write n in terms of years, where n=1 and r=8 (no need to divide by 12 as now calculating amount at the end of 12 months or 1 year), then we will get:

A=1, 00, 000 [1+8/100]1=108000 which is close but not equal to 108299.65. Hence higher the frequency of compounding higher the final amount and interest.

Some schemes may apply single frequency of compounding for one year instead of monthly. In this case the end of year amount of interest (Rs 8000) is divided by 12 to pay out equal monthly interest when depositor opts for monthly interest payout. Alternatively for single yearly compounding frequency FD scheme may apply monthly interest payout formula as I 1month=A1month-P1 month= P [1+r/100]1/12-P. Here r is actual annualized and not pro rata of annualized n=1/12 (one month is 1/12 of 1 year).

## Online fixed deposit calculators

Online fixed deposit calculators return the amount and interest figures within seconds. The backend software applies the formula of compounding used by bank. To use the online fixed deposit calculator input the principal amount, annualized rate of interest and tenure of investment in the boxes and click on results tab to get your answer.

### 1. What frequency of interest payout is better?

If you don’t draw out the interest you get more final sum at the end of tenure. This is because alongside the principal the interest also earns interest at the same fixed deposit interest rates. The fixed deposit interest rates mentioned by banks/companies are annualized. Though interest rates are annualized, banks have monthly accrual system. Hence depositors can choose for monthly credit of interest in linked savings account. Interest can be also withdrawn quarterly, half yearly and yearly. The more the depositor delays interest withdrawal the more is the growth in the sum due to cumulative rate of interest. If depositor draws out interest monthly then only the principle amount gets reinvested. However many investors may prefer the monthly pay out of interests as additional income or for putting interest amount to other use.

### 2. Does fixed deposit calculator calculate tax savings?

The actual interest money earned from fixed deposit investments can be lower than shown in calculation due to tax deduction of source by banks. Banks may deduct 10%, 20% or 30 % of the interest income as taxes if investor income falls within tax brackets. However investor can submit form 15G/H if applicable. Or else investor can get refund on TDS already paid during IT filing if total income works out to be within refundable brackets. Fixed deposits can be of several types, some are tax less while some are with taxes, the other features like interest rate, cumulating frequency may also differ. A fixed deposit calculator may not answer for all these. The investor may at the most get an idea of returns through FD calculator at particular amount, rate of interest and tenure.

### 3. Is fixed deposit calculator same as loan calculator?

The calculation formula applied is different for the above two. Most loan calculators are based on EMI formula. EMI or equated monthly installments is monthly part payment of original loaned amount + interest on the loaned amount, such that the amount is same for all months.

### 4. Do fixed deposit calculators work for changing rates of interest?

The rate of fixed deposit does not change during the fixed deposit period tenure opted by investor even if RBI/bank announces drop or increase by few basis points. The change is applied on new FDs. Hence FD calculators only calculate for single rate of annualized interest. 