How Is Interest Calculated On A Fixed-Deposit?

Fixed deposits are a popular form of investment for investors looking for guaranteed returns on their money. The key feature of fixed deposits is that you get higher returns of interest than what you would get from savings accounts. The interest rate earned on fixed deposits depends on the amount deposited, the duration and terms of the fixed deposit, and the bank offering the FD.

How Is Interest Calculated On A Fixed Deposit?

Simple Interest and Compound Interest determine interest on a fixed deposit. Depending on the deposit size and duration, banks may use either option.

Simple Interest

  • The formula for Simple Interest (SI) : 

“Principal x rate of interest x time period divided by 100” or (P x R x T/100).

Where:

P= Principal amount

R = Rate of interest per annum

T= No. of periods (in years)

Compound Interest 

Compound Interest (CI) = P {(1 + i/100)n – 1} 

Where:

P = Principal amount

n = number of years

i = rate of interest per period 

FD Interest Calculation Formula

Use the below formula for manual FD interest calculation if you wish to determine how much interest you will receive at the end of the term:

A= P(1+r/n)^n*t

Where:

  • A = Maturity Amount,
  • P = Principal Amount,
  • r = Rate of Interest,
  • t = Duration of FD
  • n = Compounded Interest Frequency

One can also use an interest rate calculator for fd making it easier to calculate FD interest rates with just a few clicks. It considers the principal amount, rate of interest, and tenure to compute the return on investment (ROI) for fixed deposits.

Which bank offers the highest fixed deposit interest rate? 

The best fixed deposit account rate depends on the bank, prevailing market conditions, and your investment needs. For instance, some banks offer higher FD interest rates on a specific tenor, such as five years, while others may offer higher rates on shorter tenors. If we need to pick one bank, we will pick RBL Bank as it offers the highest fixed deposit interest rate.

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