Due to their guaranteed returns, fixed deposits are one of the most common and convenient investment options on the market. Have you ever wondered how banks measure interest on fixed deposit amounts? What factors decide the final maturity level and how are interest rates calculated? Here’s how to figure out how much your fixed deposits are worth.
Interest on fixed deposits are compounded quarterly
- For calculating the maturity sum of your fixed deposits, use the formula
A = P (1 + (r/400)n
- Where “A” represents the maturity amount, “P” represents the deposit amount, “r” represents the interest rate, and “n” represents the number of quarters for the chosen duration.
- For example, if you invest Rs.2 lakhs for three years at a 10% interest rate, the following is what you’ll get if you plug the numbers into the formula:
200000 x (1+(10/400) = Rs.2,68,978 Lakhs (4 quarters x 3 years)
- Thus, on a quarterly cumulative basis, the interest received on the deposit for three years is Rs.68,978/-.
You may use the Bajaj FD calculator to simplify calculations by simply entering the values and tenor for which you plan to hold the funds with the bank. Bajaj Finserv FD calculator will show the maturity value as well as the rate provided by the bank for the chosen tenor.
Factors that influence the amount of interest received and the maturity date
- Principal amount – The amount of interest received is equal to the principal. The higher the amount of money invested, the higher the interest rate.
- Rate of interest – The higher the interest rate, the more interest is paid.
- Senior citizen – Because of their reliance on interest for their subsistence, senior citizens receive a marginally higher rate of interest (usually 0.5 percent higher) than others.
- Deposit type – Fixed deposits are divided into two categories. Fixed deposits pay interest monthly or quarterly, depending on the preference. Cumulative deposits (quarterly compounded) pay interest at maturity. Since the interest income is reinvested, cumulative deposits allow you to earn more. If you choose monthly interest, the rate of interest is discounted at the same rate, so the amount of interest paid is marginally less than if you choose quarterly interest.
If you select the quarterly interest payment option, the Bajaj Fixed Deposit calculator formula is as follows:
P x T x R (365 x 100)
Where P denotes the amount invested, T denotes the period of time in days, and R denotes the rate of interest.
Using the Bajaj Finance FD calculator and entering the above-mentioned information is the simplest way to measure the maturity sum. Without having to do any manual work, the calculator can compute the overall maturity sum. The maturity amount and cumulative interest paid on your fixed deposit will be shown automatically. You should experiment with various tenors and deposit amounts to see if the maturity level and interest received fluctuate. This will help you better prepare your FD investments and predict your returns before you invest.