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# How to Calculate Interest on Fixed Deposits

When it comes to saving money, fixed deposits are an excellent option for individuals who want to earn interest while keeping their funds secure. Fixed deposits are low-risk investment options that provide higher interest rates compared to savings accounts. They are easy to open and manage, and you can choose the tenure based on your financial goals.

One of the key aspects of fixed deposits is calculating the interest earned. The interest rate on fixed deposits is usually fixed at the time of investment and remains the same throughout the tenure. However, the interest earned varies based on the tenure, the amount invested, and the interest rate offered by the bank.

Here's how to calculate interest on fixed deposits:

Step 1: Determine the Principal Amount

To determine the principal amount of a fixed deposit, you need to know the amount you are investing in the account. This amount is the principal amount, and it will determine the interest earned on your deposit. If you are investing a lump sum amount, this should be easy to determine. However, if you plan to invest a recurring amount, you will need to calculate the total sum of these investments to determine the principal amount. Make sure to consider any fees or taxes that may be applicable and subtract them from your investment amount to get an accurate principal amount. With the correct principal amount, you can use the formula to calculate your interest earned on the fixed deposit.

The principal amount is the sum of money you invest in the fixed deposit. Suppose you invest Rs. 1,00,000 in a fixed deposit for a tenure of one year. In that case, the principal amount is Rs. 1,00,000.

Step 2: Check the Interest Rate

Checking the interest rate offered on a fixed deposit is crucial before investing. You can check the interest rates offered by various banks and financial institutions to compare and choose the most favourable one. Interest rates can vary based on the tenure of the deposit and the amount invested. Typically, longer tenures net higher interest rates, and larger deposits earn higher interest rates. Most banks and financial institutions publish their interest rates on their websites or through their mobile apps. Additionally, you can visit the bank’s nearest branch or simply give them a call to check the interest rate offered on their fixed deposit schemes. Checking the interest rate before investing can help you choose the most profitable investment and maximize your returns.

The interest rate is usually expressed as a percentage per annum (p.a.), and it is fixed at the time of opening the fixed deposit account. Let's assume the interest rate offered by the bank is 6% p.a.

Step 3: Check the Tenure

Checking the tenure of a fixed deposit is essential as it will determine the investment period, and thus the interest earned. Tenure refers to the length of time that you will be investing your money in the fixed deposit. Different banks and financial institutions offer different tenure options ranging from as short as one month to as long as ten years. Generally, longer tenures offer higher interest rates, and shorter tenures give lower interest rates. Therefore, it is important to choose the tenure based on your financial goals and risk appetite. If you're planning a long-term investment for your retirement, for example, a longer tenure will give you peace of mind over the years. However, if you have a short-term financial goal, such as saving up money for a down payment on a house, a shorter tenure will be more beneficial. Ultimately, checking the tenure is essential in ensuring that your investment is aligned with your financial goals and investment timelines.
The tenure of the fixed deposit is the time period for which you have invested your money. In our example, the tenure is one year.

Step 4: Calculate the Interest

The formula to calculate the interest earned on fixed deposits is:

Interest Earned = Principal Amount x Interest Rate x Tenure / 365

Using this formula, the interest earned on the Rs. 1,00,000 fixed deposit for one year at 6% p.a. will be:

Interest Earned = 1,00,000 x 6 x 1 / 365 = Rs. 1643.84

Therefore, the total amount you will receive at maturity is Rs. 1,01,643.84 (Principal + Interest)

Apart from the traditional method of calculating interest on fixed deposits, many financial institutions are now offering online calculators that can help you determine the interest earned quickly. These online calculators also factor in the compounding interest, so you get a more accurate estimate of the interest earned. The Bajaj Finserv app features a Fixed Deposit Calculator. One such online tool is the Bajaj Finserv Fixed Deposit Calculator, which is available on their mobile app. Bajaj Finserv's fixed deposit calculator is free to use, and it provides a detailed breakdown of the interest earned and the maturity amount, based on your investment amount, tenure, and interest rate. Apart from the Fixed deposit calculator, Bajaj Finance offers high-interest rates of up to 8.60% p.a.