Fixed deposits are long-term investment ventures, where a specific amount of principal money is deposited with a bank for a specific time. The interest generated in this period also gets accumulated with the bank. Once the tenure is completed, the customer will get their principal money back along with the interest. The minimum amount that can be invested for a fixed deposit is Rs 1000/- for at least seven days.
There are two ways to calculate interest on fixed deposits. Simple Interest and Compound Interest. Simple interest is a method of calculating interest on the principal amount at a specific rate of interest for a specific time. Compound Interest, in simple terms, is the interest earned not only on the principal amount but also on the interest amount.
FD Calculator also helps the users to calculate the final amount directly by just entering the figures. Calculating fixed deposits via FD calculator automatically within seconds.
Simple Interest formula for Fixed Deposit Interest
To calculate interest on fixed deposits through simple Interest is very easy. Multiply principal amount, time, and rate of interest.
The formula to calculate Simple Interest is – P *R*T/100 (The sum of the numerator should be divided by the denominator to achieve the interest value)
P = Principal amount
R = rate of Interest
T = Time period
For example – Mr. Amit deposited an amount of Rs 1000/- for a fixed deposit for 5 years in the bank. The bank offered an interest rate of 8%
To calculate simple interest on fixed deposit –
- Multiply 1000*8*5 = Rs 40,000
- Divide 40,000 by 100. You will get Rs 400.
The interest earned by Mr. Amit on Rs 1000/- after 5 years on fixed deposit through simple interest is Rs 400/- The total amount Mr. Amit will get after 5 years will be Rs 1400/-
To calculate Fixed deposit through simple interest directly, one can always opt for a Bank FD calculator
Compound Interest Formula for Fixed Deposit Interest
To calculate the interest on a fixed deposit is a little tricky for beginners, but with the right application of the formula, it becomes easy.
The formula to calculate Compound Interest on fixed deposit is: CI = P( 1 + r/100)n – P
CI = compound interest
P = principal
R = rate of interest
N = no. of years/period
For example – Mr. Amit wanted to keep Rs 1000/- for a fixed deposit for 5 years. The bank offered an 8% interest rate per annum compounded annually.
In the first year, the interest will be calculated via the simple interest method
1000*8*1/100 = Rs 80/-
Therefore, in the first year, the interest earned by Mr. Amit is Rs 80/-.
The interest earned in the first year by Mr. Amit is then added to the principal amount. Thus, the principal amount for the second year becomes Rs 1080/-
In the second year, the interest earned will be 8% on Rs 1080.
1080*8*1/100 = Rs 86.4
Now, the interest earned by Mr. Amit is Rs 86.4/-
The interest earned in the second year will be added to the principal amount. Thus, the principal amount in the second year becomes Rs 1166.4/-
This is how compound interest on fixed deposits can be calculated.
Compound interest is also calculated on a monthly, quarterly, and half-yearly basis. In that case, instead of using this method, we can calculate using the simple formula in which the principal amount is multiplied with the rate of interest raised to the number of periods in years.
To calculate compound interest on Fixed deposits, one can also directly calculate on FD calculator
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Tip before calculating interest on fixed deposit
It is important to understand that every bank offers a different rate of interest on fixed deposits. The bank FD calculator and Post office FD calculator computes the rate of interest according to the fixed deposit tenure. Therefore, it is advisable to refer to the details of every bank regarding fixed deposits interest rates.