Considering the uncertainties associated with investment options today, Fixed Deposit is a boon for investors looking for protection of capital and regular income. Many investors only know the exact maturity amount when they get the FD receipt.
While you can get definite returns with FDs, the exact amount of returns depends on the tenor and interest rates applicable on your Fixed Deposit. An FD calculator can be very handy in such situations and can help you get an idea of the returns that you can expect on the FD maturity.
What is FD Calculator
FD calculator is a tool provided by banks and financial providers to help the investor evaluate various options of fixed deposit. It is available on the websites of almost all the financial institutions. Typically, FD calculator has the following elements:
- Principal Amount
- Rate of Interest
- Cumulative or Non-Cumulative nature of the deposit
- Maturity Value
- Periodic interest pay-out in case of Non-Cumulative FD
Ideally, you must enter values of first four elements to derive the maturity value of your fixed deposit investment.
Why Use FD Calculator?
Here’s why using an FD Calculator is a smart move, before you start investing in FDs.
- You can know the exact maturity value of your fixed deposit investment well in advance. This feature will help you decide precisely for tenor, amount and financial institutions.
- You can evaluate and compare investment options by entering different FD interest rate.
- With the help of FD calculator, it is easier to calculate the required investment amount for targeted maturity value according to interest rate and tenor.
- Since you can know your interest income even before taking an investment decision, you can make tax planning efficiently. If your total income is not taxable, you can consider submitting Form 15G or 15H, so that no TDS will be deducted for your interest income.
You can know your monthly interest income against your lump sum investment in the Fixed Deposit.
How to use FD Calculator?
Using an FD calculator is very easy! You have to enter values based on information available to you, such as the interest rate, tenor and investment amount. The calculator instantly lets you know the amount you can expect as returns upon maturity.
You can consider making smart use of FD calculator as well. For example, you can enter different interest rate and principal amount to arrive at the desired maturity value. Higher the interest rate, lower is your initial investment.
Mathematics Behind Fixed Deposit Calculator
The mathematical formula used by the FD calculator is based on the compounding rate of interest. If interest is added to the principal amount on a yearly basis, below is the formula:
A = P (1+R/100) ^N
Here, A= Maturity Amount
P= Principal Amount
R=Rate of Interest
N=Tenor in years
If the interest is added quarterly to the principal amount, the formula is as below:
A= P (1+(R/4)/100) ^4N
Here also, the nomenclature is the same as mentioned above in yearly basis formula. Doing this calculation might consume a lot of time, and would also be prone to errors. The online FD calculators provide you much easier, faster and reliable way to arrive at quick conclusions.
How do tax liabilities impact your returns?
The tax liability is different for every individual. Based on your age, present occupation, present income level, your tax rate varies from others. The interest income is considered as “income from other sources” for tax calculation and is added to the total income of the individual.
Because of the above fact, no single FD calculator can give you interest income after tax deduction. However, in the first step, you can derive gross interest income from the FD calculator. You can add this income to your primary source of income to derive your total taxable income. Based on the gross income and prevailing rules, you can decide the tax slab applicable to you.