The main purpose of a fixed deposit (FD) is to enable individuals to earn a higher interest rate on their surplus funds as compared to keeping their money in a savings account. A fixed deposit is one of the safest ways you can invest your money. The interest you earn may be relatively low compared to other forms of investment, but it is a risk-free option. A fixed deposit is a good option if you are looking for a regular, fixed return on available money.

How do I calculate the interest on a fixed deposit?

The interest rate on an FD is fixed until the maturity date. Many banks offer an online Fixed Deposit calculator tool which helps you calculate the returns on your deposit. In general, the interest rates on a fixed deposit range from 6-9% per annum, depending on the issuer. All you need to do is to enter some basic details including the deposit amount, deposit tenure and interest rate offered on the chosen FD scheme. The calculator will let you know how much you will earn as interest on maturity of your deposit.

You can use the interest calculator to check the interest returns on the FD schemes offered by different bank so that you can make an informed decision while choosing between the various options. 

Fixed deposits are offered by banks and non-banking financial institutions as well as corporates. The interest you earn will vary based on the tenure of the deposit, the amount you deposit and the interest rate offered. The interest rate in turn varies depending on the issuer’s internal policies and government regulations.  For example, senior citizens enjoy a higher interest rate.

If you are not in need of the periodic interest payments and want to gain higher returns, you can reinvest the interest and enjoy the benefits of compounding. In this case, the interest you earn, in turn, earns further interest so your money is always at work.

Minimum amount and period

The minimum amount to be deposited differs depending on the issuer’s policies. The minimum and maximum tenure for a fixed deposit also varies. In general, fixed deposits can be made for a period between 7 days to 10 years. However, some of the tax-saving deposit schemes that are offered lock you in for a longer minimum period.

Advantages of having an FD account

a.It encourages savings for a longer period of time.

b.It utilises money that would otherwise be lying idle in your savings account.

c.It is a risk-free option for earning a higher rate of interest compared to a savings account.

d.You are assured of a regular, fixed amount of interest income periodically, or can choose to reinvest the interest income if you are not in immediate need of the money.

e.You can avail of additional benefits depending on the individual scheme such as tax saving advantages.