Fixed deposits (FD) are one of the most trusted and popular investment options available in India. When you invest in an FD, you deposit a one-time lump sum, which earns guaranteed returns.
The interest rates on fixed deposits are higher as compared to that of a savings or current account. So, if you have extra funds, you can park them safely in an FD to grow your wealth in the long run.
Why Invest in a Fixed Deposit?
There are several reasons why fixed deposits continue to be the preferred mode of investment and savings for millions of Indians.
Here are the top benefits of investing in FDs:
Guaranteed returns: When you invest in an FD, the bank assures you guaranteed returns at the end of the investment period.
For example, you open an FD for Rs. 1 lakh for 10 years at the interest rate of 6%. At the end of ten years, you are guaranteed a maturity amount of Rs. 1,91,218.Risk-free investment: The return from an FD is fixed at the time of deposit and is independent of market fluctuations. With an FD, you know that you’re getting guaranteed returns at the end of the tenure.
Get loans: An FD acts as collateral for taking loans. Most banks require you to provide some form of guarantee or collateral before they can issue you a loan. When you have an FD in a bank, you can take loans up to 80% to 90% of the invested amount.
Get a secured credit card: Credit card approval requires a high credit score and a steady source of income. If you don’t have either, you can opt for a secured credit card with your FD as collateral.
Here, the FD amount acts as a guarantee, and you can get up to 90% of the FD value as the credit limit on your credit card.Choose your preferred tenure: FDs are available for tenures ranging from 7 days to 10 years. You can select the preferred tenure that suits your financial needs.
FD Features: At a Glance
Single lump sum deposit.
Flexible tenures ranging from 7 days to 10 years,
Guaranteed and risk-free returns.
No upper limit on the deposit amount.
Additional interests for senior citizens.
Helps in building your wealth in the long run, without any risks.
What is an FD Calculator and How does it help?
Finding the right investment scheme to help you achieve your financial goals is a major challenge. With so many schemes available, how does one zero in on the right scheme that helps you achieve your financial objectives?
An FD calculator can help you make an informed decision regarding your investment. It is a free online tool that helps you determine the maturity amount of your fixed deposit investment.
Here are the top benefits of using an FD calculator:
Compare FD Schemes from Different Banks - Different banks offer varying interest rates on fixed deposits. By using a calculator, you can compare the rates of different banks to find out the best scheme for you.
Save Time - Calculating the maturity amount of an FD manually is time-consuming and complicated. With an FD calculator, you don’t have to do any manual calculations. It’s all automated and 100% accurate.
Easy to Use - An FD calculator is very easy to use. All you have to do is input the required information: investment amount, tenure and interest rate. The calculator computes the maturity value based on your inputs, within a few seconds.
Choose the Right Tenure - The tenure of investment for FDs ranges from 7 days to 10 years. By using an FD calculator, you can adjust the tenure value to find out the right investment period that gives you desired payouts.
Perform Financial Analysis to achieve your Financial Goals - You can use an FD calculator in two different ways:
Vary the investment amount to decide how much and how long to invest, in order to reach your desired maturity value.
Have a fixed investment amount and calculate the maturity and wealth gained for different tenures.
To sum up, an FD calculator is a FREE tool that helps you make informed decisions regarding your investments. So, make sure to use an online FD calculator to figure out the right investment tenure and calculate the maturity amount, before investing in an FD.
Types of Fixed Deposits
Contrary to popular belief, fixed deposits are of several types. Some common types of FDs include:
Standard Fixed Deposits
The tenure of standard fixed deposits ranges from 7 days to 10 years. They are available at all banks and the majority of NBFCs (Non-Banking Financial Corporations). The interest rates are usually higher than regular savings accounts.
While these deposits have a fixed tenure, you can prematurely close the deposit by paying a premature withdrawal penalty.
Tax-Saving Fixed Deposits
If you’re looking to enjoy tax exemptions, then a tax-saving FD is an excellent choice. You can enjoy tax exemptions of up to Rs. 1.5 lakhs each financial year. A drawback of tax-saving FDs is that it comes with a lock-in period of 5 years, and you cannot withdraw your money before the tenure is completed.
Senior Citizen Fixed Deposits
As the name implies, these are special fixed deposit schemes available only to senior citizens (individuals aged above 60 years). They offer higher interest rates compared to standard FDs and have flexible tenures.
Cumulative Fixed Deposits
In cumulative fixed deposits, the interest is compounded yearly or quarterly. However, the interest is reinvested into the scheme, helping you grow your wealth with the power of compounding. At the time of maturity, the depositor receives the principal along with the compounded interest.
Non-cumulative Fixed Deposits
In non-cumulative fixed deposits, the interest is not reinvested in the scheme. Instead, it is paid out at fixed periods, depending on the depositor’s preference. This is a good choice for individuals and retirees looking for a steady income source.
Flexi Fixed Deposits
This gives you the flexibility of a savings account with the high-interest rates of a fixed deposit. You can withdraw the deposit amount whenever you wish, without having to pay a penalty.
How to use an FD Calculator?
Using an FD calculator is quite easy. Here are the steps to follow:
Choose the customer type: senior citizen or standard
Choose the type of FD: cumulative, non-cumulative, etc.
Enter the total investment amount. Note that this is a one-time lump sum.
Select the investment tenure
Some FD calculators require you to enter the interest rate, while others input the interest rate automatically. You can find the latest rate of interest on the website of your preferred bank.
Once you enter all the values, the calculator computes the maturity amount. You can readjust the entered values to find the right investment amount and tenure, to achieve your desired financial goals.
Reach Your Financial Goals with Risk-Free FDs
Fixed deposits are risk-free investment tools that help investors grow their wealth in the long run. Unlike mutual funds, the returns from an FD are not tied to market performance. So, you enjoy guaranteed returns, irrespective of the fluctuations in the market.
Therefore, if you’re looking to build your wealth in the long term without any risks, FDs are an excellent choice. They are the preferred investment tool for retirees and conservative investors.
If you have any extra funds, you can park them in an FD to enjoy higher returns compared to your regular savings account. But before you invest in an FD, make sure to use an FD calculator to figure out the maturity amount and to compare FDs from different banks.
Frequently Asked Question
Q1. How is the FD maturity amount calculated?
The maturity amount is calculated using the formula:
Maturity Amount = Principal Invested (1 + rate of interest/compounded interest frequency)^ compounded interest frequency * number of years
As you can see, this formula is a bit complex and using it manually to find the maturity amount for your FD is difficult. Using an FD calculator helps you calculate the maturity amount quickly, without complex manual computations or errors.
Q2. What are the factors that affect FD interest rates?
The interest rates of an FD depend on several factors like:
- Investment duration - You get maximum returns when you invest for a longer duration.
- Amount invested - Most banks offer higher returns when you deposit a large amount of money.
- Age of the investor - Senior citizens enjoy special interest rates.
Besides these three factors, the interest rate varies from one bank to another. So, it’s a good idea to use an FD calculator that helps you compare the interest rates offered by different banks.
Q3. Are FDs 100% safe?
Yes. Fixed deposits are risk-free returns and the maturity amount is independent of market performance. It assures both safety of capital and guaranteed returns.
So, if you’re looking to park extra funds in a safe investment scheme, then fixed deposits are perfect for you. However, if you’re looking for bigger and quicker returns with more risks, then you can consider alternatives like mutual funds.
Q4. What is the minimum tenure for fixed deposits?
You can invest in an FD for a minimum of 7 days and a maximum of 10 years. The rate of interest offered varies depending on the investment tenure. Additionally, at the end of the tenure period, you can set up auto-renewal to extend your investments automatically.
Q5. Are there separate FD calculators for different banks?
No. You can use any FD calculator to calculate the maturity amount for your fixed deposit, irrespective of your bank. Just make sure that when you use the calculator, feed in the latest interest rate offered by your bank.
You can find these current interest rates by visiting your bank’s site or by calling the customer care team.
Q6.What is the difference between an FD and RD?
The key difference is the mode of investment. In an FD, you invest a one-time lump sum for a fixed period. In a recurring deposit, you invest a small amount at frequent intervals for a fixed period. For example, let’s say you open an FD for Rs. 1 lakh for ten years.
The amount is deposited in bulk at the beginning of the FD. Whereas, in an RD, you may deposit Rs. 5000 monthly, for ten years.