Please help me. How do I calculate fixed deposit interest?
I think I can help you know how to calculate FD interest. It is not as complicated. You should know that to calculate fixed deposit interest, there are two methods: FD interest calculations with simple interest and compound interest. I’ll share examples of both types below:
1. Simple Interest Formula
If your FD is for a short tenure, say 2 years, bank may offer simple interest, the FD interest calculation formula is:
Simple Interest = (P × R × T) / 100
Here, P is Principal amount, i.e., your deposit, R is the annual rate of interest and finally T is Time period
So if bank offers simple interest on your investment of Rs. 50000 for 2 years at 6%, this will be the calculation:
Simple Interest = (50,000 × 6 × 2) / 100 = Rs. 6,000
So the total maturity amount will be Rs. 56,000
2. Compound Interest Formula
Now moving the FD compound interest formula, most banks offer compound interest.
Compound Interest formula is:
P × (1 + R/N)^(N×T) – P
Here, P is Principal amount, R is annual interest rate, N is the number of compounding periods in a year, for example 4, and finally T is for time in years.
If bank offers compound interest on your Rs. 50,000 investment at 6% annual interest and at a quarterly compounding frequency for 2 years, this will be the calculation:
Compound Interest = 50,000 × (1 + 0.06/4)^(4×2) – 50,000 = Rs. 6,272
So the total maturity amount would be ₹56,272
Calculating the maturity amount is crucial when investing in a fixed deposit. This calculation will help you manage your finances effectively. The interest can be calculated using two methods: Simple Interest or Compound Interest.
The simple interest method is used for short-term or special deposits. Here is the formula I used to calculate this:
SI = (P × R × T) / 100
Where:
- P = Principal
- R = Annual Interest Rate
- T = Tenure in Years
However, most banks use the compound interest method. Here, you earn interest on your principal and on the interest that has already been added over time. The formula is:
A = P (1 + r/n) ^ nt
Where:
- A = Maturity Amount
- P = Principal
- r = Annual Interest Rate
- n = Number of Compounding Periods in a Year (12 for monthly, 4 for quarterly, etc.)
- t = Tenure in Years
Now, if you want to know how to calculate FD interest monthly, set n as 12 in the formula. Monthly compounding gives better returns than quarterly or yearly compounding.
Example:
Invest ₹50,000 at 6.5% p.a. for 3 years, compounded monthly.
A = ₹50,000 × (1 + 6.5/12) ^ (12×3)
Amount at Maturity = ₹60,734
Interest earned = ₹10,734
Of course, doing this manually can be a bit of a headache, especially if you are comparing different tenures or compounding options. That is exactly why I recommend using a reliable FD Calculator.