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# How to Calculate Interest on Fixed Deposits? Published

on You must clearly understand how your investment will increase over time if you opt to invest in a fixed deposit. In other words, it’s critical to comprehend the methodology used to determine the interest on fixed deposits by banks and the interest rate calculator for FD. The principal sum you deposit is the major factor used to compute the interest on the FD. Your investment may earn simple or compound interest based on the type of deposit you select (non-cumulative or cumulative).

## What is an FD?

A Fixed Deposit (FD) is usually one of the most popular options for investors when it involves long-term investments. You can start an FD account at a bank where you deposit a certain amount in a lump sum for a particular period and are granted a guaranteed interest rate that fluctuates depending on the amount placed and the tenure you select.

## How Does an FD Work?

A fixed deposit is a simple investment that only needs a single deposit. You can deposit a sum of money referred to as the principal for a specific time (tenure). During this time, the deposit will accrue interest. In the end, you will receive your money plus interest. Anyone with a bank account may start an FD for as little as Rs 1000. The shortest tenure is seven days.

## Different Fixed Deposit Interest Rates

• Simple Interest and Compound Interest are two factors you ought to know when you are wondering how to calculate interest on FD.
• Depending on the deposit amount and duration, banks may employ either option.
• Simple interest just earns interest on the principal invested sum. In the case of compound interest, interest is accumulated on both the principal and the interest.

Simple Interest

Simple Interest (SI) is calculated by multiplying the principal by the interest rate and the time period and dividing it by 100, or (P x R x T/100).

Where:

• P is the principal amount
• R is the annual interest rate
• T is the time in years

Compound Interest

• With this approach, interest is earned on both the principal and the interest. Many banks offer compound interest on Fixed Deposits, but you need to ensure you get a favourable interest rate.
• The return you receive when the force of compounding kicks in is known as compound interest.

## How to Earn the Best Returns on Fixed Deposits?

Knowing how to calculate interest on FD, you may be wondering how to maximise your returns. The greater the rate of interest, the better the returns. Here are a few crucial pointers for getting the best returns on fixed deposits:

• You should examine the FD plans offered by several banks and NBFCs. Choose the one that offers the most returns on your investment. Before choosing, you can calculate the bank interest on fixed deposits for several plans using an FD calculator.
• You need to maximise your returns once you’ve selected the best FD interest rate plan. You will get all the interest on your principal amount at maturity if you select the cumulative option. Higher returns are also obtained as a result of the cumulative FD’s compounding effect.
• If your annual income falls within the basic exemption threshold, you can file form 15G (or form 15H if you’re a senior citizen). It avoids TDS on FD interest. It will increase the amount of your FD investment delivered to your account.

## Conclusion

It ought to give you a good sense of how the interest on fixed deposits is determined, as well as what you could do to maximise the profits on your FD. Use an interest rate calculator for FD to understand better how your money will increase over time before you make any fixed deposit investments. Kossi Adzo is the editor and author of Startup.info. He is software engineer. Innovation, Businesses and companies are his passion. He filled several patents in IT & Communication technologies. He manages the technical operations at Startup.info.

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