Fixed deposits are the most sought after investment options in India as it ensures guaranteed returns. People tend to invest more in fixed deposits as it is easy to manage and the invested money remains completely secured with the bank or financing entity. A Fixed deposit allows investors to earn savings at a higher rate of interest than a standard savings account. However, premature withdrawal of the invested amount in the case of a fixed deposit is restricted and allowed with a penalty as per the bank norms.

Investors can opt for periodic interest payouts as it can help the investor to meet the monthly expenses. Tax deduction on fixed deposit interests is levied by the government as per the guidelines of the Income Tax Act 1961. Before starting investing in any investment option, investors must analyze the interest rates. The task of calculating interest rates of fixed deposits might seem like a tough job. However, it can be done effortlessly using a simple formula. One can take help from online calculators as well.

## How to calculate the fixed deposit interest rate?

Fixed deposits come with both simple interest rates and compound interest rates. The processes and formulas for calculating the two interest rates are mentioned below:

### Calculating simple interest rates

The interest earned on a particular rate that is initially decided against a specific tenure of investment is known as simple interest. With the help of the following steps, one can calculate the simple interest:

1. Multiply the invested amount (also known as principal amount), pre-decided rate, and tenure together. Afterward, divide the result with 100. The value you finally get is the amount of simple interest.
2. Add the simple interest amount with the principal amount to get the total amount that an investor will receive at the time of maturity.

### Formula for calculating simple interest

The formula of simple interest is, PRT/100.

Here, P denotes the principal amount of investment, R denotes the interest rate that is pre-decided and T denotes the tenure of the fixed deposit.

Suppose, the principal amount for a fixed deposit is Rs. 10,000, the interest rate is 15% and the tenure of investment is 5 years, the simple interest will be:

Simple interest rate= 10,000155/100= Rs 7500

So, at the time of maturity, the investor will get Rs. 17,500.

### Calculating compound interest rates

The interest earned on the principal as well as on every interest add-ons during the tenure is known as compound interest. To calculate the compound interest, you can follow the following steps:

1. Step 1: Multiply the principal amount by the annual interest rates plus one raised to the number of compounding periods. It will show the total maturity amount combining the principal amount and compounded interest.
2. Subtract the maturity amount from the principal amount to get the exact compound interest value.

### Formula for calculating Compound Interest

The formula of compound interest is A= P(1+r/n)^(n*t).

Here, A denotes the maturity amount and P stands for the principal amount. The rate of interest is denoted by r and the number of compounds in a single year is denoted by n. Finally, the tenure of the fixed deposit is denoted by t.

According to the above stats, if the principal amount of a fixed deposit is of Rs.10,000 with a 10% compound interest rate (on a quarterly basis) the tenure is 3 years. Then, the maturity amount can be derived in the following way:

A= 10,000 {1+(0.¼)}^(4*3)
A= 10,000 (1+0.025)^(12)
A= 10,000 (1.025)^12= 13,449

Now, you need to subtract the maturity amount from the principal amount to get the compound interest. So, the compound interest earned over 3 years in the above case is:

Compound interest= Rs. (13,449- 10,000)= Rs. 3449.

### Online calculator

The fixed deposit calculator is a helpful instrument that allows investors to check the estimate that they can avail at the maturity of the fixed deposit. The calculator can errorlessly show the amount that an investor will receive at the time of maturity. There are numerous websites where the calculator is available. You must always check the authenticity of the website before using it.

The reason why all investors must use the calculator is that it provides an opportunity for the investor to make vital decisions for the future of the fixed deposit investment. Moreover, it also gives the investor a chance to compare different fixed deposit investment structures. One has to enter some data in the calculator like:

• Amount deposited
• Interest Rate
• Tenure of the fixed deposit (months/ years)

#### Benefits of using fixed deposit calculators

Some benefits of using online FD calculator are mentioned below:

• Eases the complicated procedure of calculating the actual amount of returns on fixed deposits after maturity.
• Provides the investors with error-free results.
• No charges are levied by the website on the usage of the fixed deposit calculators.
• Easy accessibility to your fixed deposits.

### Factors affecting fixed deposit interest rates

There are some vital factors on which the FD interest rates depend. Every banking and Non-banking Financial Company (NBFC) dealing with fixed deposits make the following considerations when granting an account:

#### Applicant’s age

In general, the banks and NBFCs allow higher rates of interest for senior citizens. Different entities have specific age limits for an applicant to be considered as a senior citizen. It may vary from 55 years to 65 years.

#### Fixed deposit Tenure

The tenure of a fixed deposit can affect the interest rates a lot. The fixed deposit rates will increase with the increasing tenure of a fixed deposit. In general, you can open a fixed deposit account with a tenure of 7 to 10 years depending upon the bank or NBFC.

#### Economic conditions

The rate of interest on fixed deposits prominently depends on the economic condition of the country. The interest rate might depreciate with increasing inflation. Moreover, if the RBI changes the repo rate, it can directly affect the fixed deposit interest rate too.

The interest rate has a crucial role in any kind of investment as the actual amount of return on investment depends on it. As an investor, you must look for an entity that is offering you high fixed deposit interest. One should compare the interest rates of various fixed deposit options available in the market before making any decision. An online interest rate calculator will make the job easy.