Fixed deposits are among some of the best and easiest avenues to save. This is rightly so as a fixed deposit offers vastly superior benefits when compared to others. Some of these are –
- Fixed and secure return under all conditions.
- No hassle of the market condition affecting the outcome.
- Highly rated secure investment.
- FDs are a blessing when it comes to tax benefits.
- You can easily take a loan against the total money saved in your fixed deposit.
- The FD rate slabs are very lucrative.
- FDs have very high liquidity -you can easily break one when in need.
- A lot of options with regard to investment tenure.
Now that we know the benefits and advantages, let us take a peek at the FD interest rate and what are its nuances.
First, let us have a look at how the FD interest rate is calculated?
The mathematical formula for total interest goes somewhat like this
{A * [(1+I/N) ^ (N*T)]} – A
the various alphabets represent the following –
A – Amount deposited can also be actually called as the principal amount.
I – This is the FD interest rate that the bank offers you.
N – The interest is always compounded at a certain frequency. This represents that.
T – The tenure or the time period for which you have chosen your FD account to run.
Let us look at an example to understand this better and quicker.
Suppose you want to deposit 10000 Rs. The FD interest rate you get is 8 per cent half-yearly, and the term you choose is 10 years.
So the calculations for the same would be –
A = Rs.10,000
I = 0.08
N = 2
T = 10 years
{10000*[(1+0.08/2)^(2*10)]}-10000 = 11,911 Rs.
Now, this calculation is not really that easy, and so there is the FD interest calculator too available to do the job faster. You just have to enter the values as per your needs, and it will simply spit out the total interest you stand to gain.
Factors that are ultimately responsible for determining your FD interest rate.
If you pick the right scheme, then the return you get on an FD is quite lucrative. So let us take a look at the things which influence your FD interest rate.
- The type of financial institution you choose to open your FD account: There are a number of places available in the market where you can open an FD like NBFC, bank or post office. They all have their own schemes and interest rates in the case of a fixed deposit. In general, an NBFC will offer the highest interest rate though thorough research is necessary before opening an FD.
- The total money that you want to deposit in your FD: This is another very important factor that influences the FD interest rate. Usually, interest rates for an amount greater than 2 crores or in some cases 5 crores are different than normal.
- The total time period you choose for your fixed deposit to function: The length of the tenure is a prime factor affecting the interest rate of an FD. In general, longer is the duration higher is the interest rate of the FD.
- The person who is actually going to deposit for the FD. – The FD rate that is available for a senior citizen is almost 0.4 per cent higher than those available to below 60 years. This is a prime reason why the older generation of our country has such a high number of FDs opened all over India.
These were all the things that one should know about fixed deposit rates, and all that remains is for you to go ahead and open that FD!
