Understand Your FD Returns With FD Calculators (1)

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Understand Your FD Returns With FD Calculators
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Introduction
Fixed deposits, also known as FDs, are one of
Indias most common savings instruments. At a
fixed interest rate, you can invest in an FD for
a few weeks to a few years. Well look at the two
forms of FDs in this article interest payment
and reinvestment. The article discusses the
differences between these two types of FDs, as
well as the interest measurement with and without
TDS for these two types of FDs.
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Particulars
Interest Payout Option
Reinvestment Option
Interest Payment
Interest is paid out every month or quarter
Interest is paid along with the principal at the
time of maturity
Suitable for investors who want regular income
like retirees
Suitable for investors who are in no need of
regular income
Suitability
Interest is calculated using a compounded
interest formula. Interest is compounded.
Interest Calculation
Interest is calculated normally using the simple
interest formula
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Calculation of Interest on FD
FD interest rates are currently around 6 to 8.
Furthermore, the higher the interest rate on an
FD, the longer the term. If you dont need daily
income, a reinvestment plan is a better option
than an interest payout, which pays you interest
every month or fifth. You can reinvest the
interest from an FD rate calculator to obtain a
higher rate of interest.
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Interest Payment Option
A three-year fixed deposit of Rs 10,00,000 at a
rate of 6.75 per cent per annum was made. The
monthly interest payment is calculated using
simple interest.
Example
Reinvestment Option
Assume the Rs 10,00,000 FD is reinvested at a
rate of 6.75 per cent per year. Monthly interest
would have been reinvested at the same rate in
the FD. Compounding interest is used to determine
the interest payment.
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Interest Payment Option
A three-year fixed deposit of Rs 10,00,000 at a
rate of 6.75 percent per annum was made. The
monthly interest payment is calculated using
simple interest.
Example 2
Reinvestment Option
Assume the Rs 10,00,000 FD is reinvested at a
rate of 6.75 per cent per year. Monthly interest
would have been reinvested at the same rate in
the online FD calculator. Compounding interest is
used to determine the interest payment.
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Wrapping Up
If you want to earn money on a monthly basis, the
interest payment option is easier. Otherwise,
since interest is multiplied, the reinvestment
strategy is the better option. In comparison to
interest payment alternatives, the effective rate
for interest in reinvestment options varies by 42
basis points. Thats a Rs 13,822 difference. This
does not seem to be a significant difference, but
as the FDs term lengthens, the difference
between the maturity amounts of these two options
widens. What Einstein said about compound
interest being the worlds eighth wonder is
definitely noteworthy. It always gets a lot of
bang for the buck.
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Using the FD calculator online and entering your
basic information is the simplest way to measure
the maturity sum. Without having to do any manual
work, the FD calculator online 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.
Thank You