What is a Fixed Deposit (FD)?
A Fixed Deposit (FD) is a financial instrument provided by banks which provides investors a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account.
Benefits of Fixed Deposits
- Guaranteed Returns: FDs offer fixed returns that are not affected by market fluctuations.
- Safety: FDs are one of the safest investment options, insured up to ₹5 lakhs per bank by DICGC.
- Flexible Tenure: You can choose tenure according to your financial goals, from 7 days to 10 years.
- Liquidity Options: Though premature withdrawal may incur penalties, FDs can be converted to cash if needed.
- Loan Against FD: You can get up to 90% of your FD amount as a loan if you need funds.
How to Use This Calculator
- Enter the Principal Amount you wish to deposit.
- Specify the Interest Rate offered by the bank.
- Set the Tenure in years and months.
- Select the Compounding Frequency (how often interest is added to your principal).
- Click "Calculate FD Returns" to see your maturity amount and interest earned.
Understanding Compounding Frequency
The more frequent the compounding, the higher your returns will be:
- Simple Interest: Interest calculated only on the principal amount.
- Annual Compounding: Interest added to principal once a year.
- Quarterly Compounding: Interest added to principal four times a year (most common in India).
- Monthly/Daily Compounding: Interest added monthly or daily, resulting in higher returns.