The fixed deposit is an extremely investor-friendly product that is both safe and lucrative. By investing in an FD, you can earn guaranteed interest on your investment over the investment tenure. There are many different types of FDs available in the investment market. You can choose from the options available as per your needs.

To make the right choice, it is important to first understand how interest is calculated on your FD. And that’s where this guide can help you. So, let’s get started.

Interest calculation for an FD with monthly interest payout

In an FD where you opt for a monthly interest payout, the interest generated on your investment is paid out to you each month. Here, some banks pay interest at a discounted rate of interest.

For example, suppose that you invest around Rs. 20 lakhs in an FD and opt for a monthly payout. And say the annual interest on that amount comes up to around Rs. 1.2 lakhs. In that case, you will receive a monthly payout of Rs. 10,000 (i.e. Rs. 1.2 lakhs divided by 12 months).

To make the calculation easier, you can always make use of an FD calculator online and check the amount of interest you will earn over the investment tenure. Divide that by the number of months, and you have the amount that you will receive monthly.

Interest calculation in an FD with quarterly interest payout

You can also choose to have your interest paid out to you each quarter. This works much like a monthly payout option, except that the frequency of interest payments is quarterly, instead of monthly. Here too, you can calculate the total interest using an online FD calculator, and then divide the amount by the number of quarters in your investment tenure. That will give you the quarterly interest payout.

Again, for example, suppose that you invest around Rs. 20 lakhs in an FD and opt for a quarterly payout this time. The annual interest on that amount may come up to around Rs. 1.2 lakhs. In that case, you will receive a quarterly payout of Rs. 30,000 (i.e. Rs. 1.2 lakhs divided by 4 quarters).

Interest calculation in a cumulative FD

In a cumulative fixed deposit, the interest is added back to the investment amount. So, ultimately, your initial investment grows significantly over the investment period. You can use the formula given below to check the maturity amount of the FD.

FD at maturity (M) = P x [1 + (R ÷ 100)]NT

Here’s what the variables stand for.

P = Principal, which is the initial amount of investment

R = The rate of FD interest

N = Compounding frequency such as annual, half-yearly, quarterly or monthly

T = Tenure of the FD

Once you’ve calculated the maturity value of the FD, you just need to subtract the principal from the maturity amount to get the interest component.

Conclusion

You can always make use of an FD calculator to check how much interest you’ll earn on your investment. The online FD calculator on Finserv MARKETS can help you here. That’s not all. While you’re there, you can also choose from the different FD options available on Finserv MARKETS and invest in the right deposit for you.