If you are planning to grow your wealth over time, then it is essential to start investing at the right age. A fixed deposit is considered one of the safest investment options in our country. They are also a good option for those who want to avoid taking risks with their money and want to earn predictable returns.
Moreover, tools like FD calculator have made the overall investment scheme relatively easy, giving a fair idea of what they’ll be reaping from their planned investment.
What is a fixed deposit?
Also known as a time deposit or term deposit, a fixed deposit is a type of investment scheme offered by financial institutions/banks. In this scheme, a potential investor deposits a sum of money with the financial institution for a predetermined period, usually ranging from a few months to several years, at a fixed rate of interest.
During the term of this investment instrument, the total funds remain locked in and cannot be withdrawn until the tenure ends. However, one can withdraw it during emergencies, but a penalty is imposed. At the maturity date, the principal amount, along with the accumulated interest amount, is returned to the depositor. Therefore, the rate of interest offered on this investment varies based on the deposited amount, the term, and the prevailing market conditions.
Moreover, these are considered a safe investment option as the government authorities insure them up to a certain amount and are not subject to market fluctuations.
What is an FD interest rate?
As the name suggests, it is the rate at which a bank or financial institution pays interest on the actual money deposited by an investor in an FD account. The rate of interest here is fixed at the time of opening the FD account and remains constant for the duration of the deposit term.
Further, it varies depending on various factors such as the deposit amount, investment duration, prevailing market conditions, and the policies of the financial institution offering the scheme. Usually, the longer the investment tenure, the higher the interest is provided.
(Tip: Calculate FD interest before investing your hard-earned money.)
What affects the fixed deposit interest rate?
● Reserve Bank of India (RBI) Policy
The interest rate here is majorly influenced by the monetary policy of the central bank in a country. In India, for example, the RBI regulates the interest rates on FDs.
Another factor that affects the rate is inflation. When the inflation rate is high, the purchasing power of money decreases, and the value of the money invested in an FD also decreases.
● Credit Risk
The depositor’s creditworthiness also affects the interest rate. If the potential depositor has a good credit score and a stable financial history, banks and financial institutions may offer a higher rate of interest on their FD.
● Term and Size
The term and size of the fd also influence the rate of interest. This is because the longer the term and the larger the deposits, the financial institutions offer a higher interest rate.
How to calculate fixed deposit interest rates?
Nowadays, specific applications, such as an FD calculator, are
available on the App Store/Play Store, which helps one calculate the fixed deposit interest rate. Personally speaking, when I was planning to invest, one of my colleagues told me about the calculator offered by the Bajaj Finserv application.
- Download the app from the App Store or Play Store.
- Sign up after entering your mobile number
- Log in
- On the home page, tap on three bars situated on the top right.
- Here, you’ll see ‘Calculators & Buying Guides.’
- Go to ‘Deposits Calculators’
- Choose ‘Fixed Deposit Interest Calculator.’
- Fill in the required details
- Experiment as per your requirement.