Fixed Deposit Calculator
What is a Fixed Deposit ?
Interest Payout and Reinvestment option in Fixed deposits
How does a Fixed deposit calculator works ?
- Principal Amount
- Interest Rates
- Tenure of Deposit
Understanding Simple interest and Compound interest
Simple interest as the name suggests is simply the interest earned on the intital principal amount,when you calculate simple interest you do not calculate interest on interest and all interest calculations happen only on principle.
In case of compound interest calculations, interest gets calculated on not only the principal but also on ongoing interest you earn. Let me explain it with ane example.
Let’s say you deposit Rs10,000 with an interest rate of 10 % for 5 years . Here is how your maturity amount will vary
As per simple interest calculations, Interest earned will be Rs 1000 for every year and hence at the end of 5 years you will have Rs 5000 as interest and your total amount on maturity will be Rs 15000.
If you are doing compound interest calculations and interest is compounded annually than in 5 years you will earn interest =6105 , so at the end of 5 years you will have Rs 16105 as maturity amount.
The formulae to calculate maturity amount for compound interest rate (where interest is compounded annually) is as below
A= P (1+R/100)^n
Where A → Amount
P → Principal
R ---> Rate of interest
N→ Tenure of investments
Advantages of Fixed Deposits
- Fixed deposits can be opened at any of the banks or post offices so are quite accessible to everyone
- Fixed deposits are relatively risk free investments
- They provide higher returns than RDs and Savings accounts
- Fixed deposits provide flexible tenures and hence you can plan your money flows accordingly.
Disadvantages of Fixed Deposits
- Returns are lesser than some of the debt funds and definitely lesser than equity funds
- Tax deduction at source ensures your money does not grow as fast as it can grow in some other investments
- Inflation adjusted returns are not good at all.