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Know How Interest Is Calculated on Fixed Deposits in India Research Team | Posted On Friday, March 08,2019, 05:08 PM

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Know How Interest Is Calculated on Fixed Deposits in India



Most Indian citizens invest in a fixed deposit. Fixed Deposit ensures safe growth of the money deposited, as well as offers guaranteed returns. Financial institutions like banks, NBFCs and post offices offer FD as one of the prime investments. Discussed below is the formula used for calculation of FD interest rate:

Formula to Calculate FD interest Rate:

Take a look at this formula:

A = P (1+ r/25) 4n

Where, A denotes the maturity amount, P stands for deposit amount and n stands for the frequency of compounding. This formula helps you determine the final maturity amount of your FD. Take a look at this example:

Swati wants to deposit Rs 50,000 for duration of 5 years at the current interest rate of 7%.

A = 50,000 * {1 + (7/25)} 4 * 5

A = 70,739.

This is the standard method of calculating interest on FD. However, there are many online FD calculators available, where you just need to key in the required data and click on the calculate button to get the requisite result. These online FD calculators are really easy to use, and quite accurate.

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SEE ALSO:  Formula for Calculating FD interest Rate

Know How Interest Is Calculated on Fixed Deposits in India

Factors That Affect Interest and the Maturity Amount:

Described below are certain factors that affect the interest earned on a fixed deposit and the maturity amount:

Principal :

The rate of interest paid by the bank differs based on amount and tenure of deposit. If you deposit a higher amount, higher are the returns.


The interest earned on the FD depends on the time for which the money is invested. If you have no immediate expenditure or your finances are stable, then you can invest your money for a longer tenure to earn higher interest that will be accumulated and paid at the time of maturity. The reason being, longer investment period helps your money grow because of compounding effect.

Interest Rate:

The interest paid by the bank and the maturity amount as discussed above, are directly proportional to FD interest rate. The rate offered on FD varies across banks. Majority of the banks are currently offering an interest rate on fixed deposits ranging from 6.5% to 7.5%. To earn higher interest on your deposits, you can evaluate the interest rates offered by different banks. Visit the websites of banks and take a look at the fixed deposit interest rates.  

SEE ALSO: Rate of Interest

Type of Deposit:

FDs are the easiest options to invest, when it comes to earning interest on deposits. There is no risk factor attached to FDs and the interest income does not depend on market fluctuations.

Not only is it a safe investment option, the investor can choose the type of deposit based on their liquidity requirements. Fixed deposits can be classified into cumulative and non-cumulative based on liquidity. In case of cumulative fixed deposits, the interest is accumulated over the lock in period and is paid at the time of maturity. Whereas, a non-cumulative FD fetches you interest that is paid out to the investor on monthly/ quarterly/ half yearly or yearly basis. Cumulative FDs are suitable for investors like senior citizens.

Type of Citizenship:

The interest on deposit also depends on the type of citizen. Almost all banks and financial institutions offer slightly higher interest rate on FD to senior citizens. Most of the senior citizens are dependent on the interest earned from FDs to meet day to day expenses, as they have no other source of income. For example, SBI offers normal citizens an interest rate ranging from 5.75% - 6.85%, whereas for senior citizens the rate of interest offered is 6.25% to 7.35%.

So before investing in FD, consider comparing the interest rates offered by different banks. If you want a better return on your FD, then you must consider interest rate as one of the key factors before investing.

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