Understanding Your Fixed Deposit (FD) Investment
Our FD Calculator helps you quickly estimate the maturity amount and interest earned on your fixed deposit investments, aiding in better financial planning.
What is a Fixed Deposit?
A Fixed Deposit (FD) is a financial instrument provided by banks and financial institutions that offers investors a higher rate of interest than a regular savings account, until the given maturity date. It requires locking in a lump sum of money for a fixed tenure.
Fis are considered one of the safest investment options, making them popular for those seeking stable and guaranteed returns.
How FD Interest is Calculated
The interest on a Fixed Deposit is typically calculated using the compound interest formula. The key factors influencing the maturity amount are:
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Principal Amount (P)The initial lump sum invested in the FD.
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Interest Rate (r)The annual rate of interest offered by the bank.
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Tenure (t)The period in years for which the money is deposited.
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Compounding Frequency (n)How many times the interest is compounded in a year (e.g., annually=1, half-yearly=2, quarterly=4, monthly=12).
The formula used is:
$$A = P (1 + \frac{r}{n})^{nt}$$
Where:
- $A$ = Maturity Amount
- $P$ = Principal Amount
- $r$ = Annual Interest Rate (as a decimal)
- $n$ = Number of times interest is compounded per year
- $t$ = Tenure in years
Understanding the FD Growth Schedule
The growth schedule provides a year-wise breakdown of your Fixed Deposit, showing the opening balance, the interest earned for that year, and the closing balance. This helps you visualize how your investment grows over the chosen tenure due to compounding.
It's a useful tool to understand the progressive accumulation of interest and how it contributes to your total maturity amount.