FD Calculator
What is FD Calculator?
How to calculate Fixed Deposit returns? The answer is an online FD calculator. FD Calculator is a tool that helps you calculate the interest earnings and maturity value in a Fixed Deposit. The calculator takes into account the below input variables in order to generate the result.
- Amount of deposit: The amount that you deposit in an FD. It can be as low as Rs 1,000 and can go upto Rs 5 crores.
- Deposit term: The time period after which you get the maturity value in an FD. The deposit term in an FD ranges from 7 days to 10 years.
- Rate of interest per annum: The interest that you earn in an FD. The interest rate is determined at the time of opening an FD account.
- Type of FD: There are 3 options namely Reinvestment, Monthly payout and Quarterly payout. In the case of Reinvestment FD also called Cumulative FD, interest is compounded at quarterly intervals. The accrued interest is paid at the time of maturity. In the case of Payout option, also called Non-Cumulative FD, the interest is paid at regular pre-defined intervals (monthly/quarterly). The maturity value is equal to the principal amount.
On the basis of the above inputs, the FD calculator calculates the interest earning and maturity value in a matter of seconds.
Benefits of using BT FD Calculator:
The following are the advantages of using BT FD Calculator
- Easy to use The FD Calculator simplifies the complex calculations involved in estimating the maturity value. It enables you to generate maturity value based on customisable inputs.
- Saves time The FD Calculator estimates the interest income and maturity value in a matter of seconds.
- Accurate: The FD Calculator gives accurate results with respect to maturity value and interest earnings. Accordingly, you can plan your investments in FD in an efficient manner.
- Helps in decision making:The FD Calculator helps you in comparing different FDs. This, in turn, helps you in prudent decision making.
- Free to use: The FD Calculator is free to use with unlimited access.
How does FD calculator work?
There are 2 methods of calculating maturity value in FD
FD with Simple Interest
- Maturity value = P + (P x r x t)/100
- P: Deposit amount
- r: Interest rate on FD per annum
- t: Deposit term
Normally, interest earned on FD with a deposit term of less than 6 months is calculated on simple interest basis.
FD with Compound interest
- Maturity value = P (1 + r/n) ^ (n*t)
- P: Deposit amount
- r: Interest rate on FD per annum
- t: Deposit term
- n: Number of compounding periods
Normally, interest earned on FD with a deposit term of more than 6 months is compounded quarterly. In the case of reinvestment, interest earned during the quarter is ploughed back. Accrued interest along with principal is paid at the time of maturity. For payout option, interest earned during the month/quarter is paid out in each month/quarter. As the interest is paid out at pre-defined intervals, you receive principal at the time of maturity.
What is FD?
FD or its acronym Fixed Deposit is a type of term deposit which ensures guaranteed return on your investment. The rate of interest on FD is pre-determined at the time of booking. It does not change during the FD term irrespective of the market conditions. The deposit term ranges between 7 days and 10 years. The interest rate on FD is influenced by a host of factors like RBI’s repo rate, deposit term etc. There are primarily 2 types of FD namely cumulative and non-cumulative. In the case of Cumulative FD, interest earnings are reinvested whereas in the case of Non-Cumulative FD, interest earnings are paid out.
While bank FDs are considered safe, corporate FDs are unsecured. Bank FDs are backed by their assets but corporate FDs are not collateralised by any asset. In the event of a worsening of financial health, corporate FDs become susceptible to default risk. It is paramount to do due diligence before investing in corporate FDs. High rated corporate FDs offer lower interest rate but they are relatively safer to invest.
What are the benefits of investing in FD?
The benefits of investing in FD are
- Safety: FDs particularly bank FDs and high grade corporate FDs are considered safe to invest.
- Guaranteed returns: The interest rates on FDs are pre-determined. They do not change during the FD term.
- Suitability: FDs are suitable for risk-averse investors. However, investors willing to take risk invest in below AAA rated FDs in order to get higher interest rate.
- Collateral for loan: Banks can use FD as collateral for loan. The interest rate on loans with FD as collateral is generally lower than the interest rate charged on personal loans. Therefore, it is a cost effective method of borrowing.
- Tax Saving: Investment in 5 year FD offers you tax benefit under Section 80C of the Income Tax Act, India. Deduction upto Rs 1.5 lakhs per financial year is allowed under Section 80C. Interests earned on 5 year FD are however, taxable.
- Higher interest rate: FDs offer higher interest rates as compared to bank savings account. Moreover, senior citizens receive extra benefits in the form of higher interest rates. The interest premium can be anywhere between 25bps and 75bps over regular FDs. However, the premium can vary depending on market conditions. 1 bps is 1/100th of a percent.
What are the types of FD?
There are primarily 2 types of FD namely
- Cumulative FD: In a Cumulative FD, the interests earned are re-invested. Normally, the compounding frequency is quarterly. As interest is compounded at regular intervals, you get a higher maturity value as compared to a Non-Cumulative FD. This type of FD is suitable for those who don’t need regular income.
- Non-Cumulative FD: In a Non-Cumulative FD, the interests earned are paid out at pre-defined intervals like monthly/quarterly/semi-annual etc. On maturity, you get the principal back. In the absence of compounding, the maturity value in Non-Cumulative FD will be lower than that of Cumulative FD. This type of FD is suitable for investors who want regular income from their investments in FD.
From taxation point, there are 2 types of FD namely regular FDs and tax saving FDs.
- Regular FD: In the case of Regular FD, the interest earned is added to the total income of the investor and taxed as per marginal rates of tax. If the interest earning exceeds Rs 40, 000 in a financial year for investors below 60 years (Rs 50, 000 for investors above 60 years), then banks deduct TDS @10%. For non banking finance company (NBFC), the threshold limit for interest income in a financial year is Rs 5,000. In case PAN is not furnished then TDS @20% is deducted. TDS that is, Tax Deducted at Source is levied on the interest income from FD.
- Tax Saving FD: In the case of Tax Saving FD, you receive tax benefits under Section 80C of the Income Tax Act, India. Deduction upto Rs 1.5 lakhs is allowed under Section 80C. Thus, you can claim deductions upto Rs 1.5 lakhs by investing in Tax Saving FDs. Interest earnings on Tax Saving FD are however, taxable. Tax Saving FDs have a lock-in of 5 years.
Besides, there are Senior Citizen FDs which offer higher interest rates to senior citizens. The interest premium can be in the range of 0.25% and 0.75%. But the range can vary commensurate with market conditions.
What are factors affecting the interest rate on FD?
There are a number of factors that influence the interest rate on FD
- Monetary policy: Though not to a great extent, the monetary policy of the RBI influences the interest rates on FD. When inflation is high, RBI raises its repo rate In order to squeeze excess liquidity from the system. Repo rate and lending rates of banks are intrinsically linked to each other. When RBI raises repo rate, banks tend to raise their lending rates. Transmission in the form of higher deposit rates however, depends solely on the bank’s discretion. Normally, banks pay depositors less than they receive from borrowers. The spread is the net interest income for the bank.
- Fiscal policy: Borrowing by government has a direct bearing on the bond yields. When the government resorts to excessive borrowing by issuing securities, bond yields rise. As yields rise, banks tend to raise their deposit rates in order to keep them attractive for investors. However, this also forces banks to bump up their lending rates in order to maintain the spread.
- Competition: Banks and financial institutions compete with each other in order to garner more deposits. Though deposits are considered liability, they are the cheapest source of funds for banks/financial institutions. As credit offtake rises, banks compete with each other by offering higher interest rates on deposits.
- Deposit term: The interest rate on FD is directly linked to the deposit term. The longer the deposit term, the higher is the interest rate.
- Depositor’s age: Senior citizens are offered preferential interest rates on their deposits. The interest premium can range between 0.25% and 0.75%. This can however, change depending on market conditions.
- Credit rating: Interest rate on FD is influenced by the credit quality of the institution that is offering it. The lower the credit rating, the higher is the interest rate. Low grade institutions are susceptible to default risk. Hence, it is prudent to invest in the FD of high quality institutions only though you may have to forego a few bps of interest income in the process.
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