Fixed deposit is a popular tool for investment, thanks to their lack of exposure to risk and assured returns. This form of investment is used by risk-averse investors, as well as others to diversify their investment portfolios. Fixed deposits are offered by banks, non-banking finance companies (NBFCs) as well as post offices.
The interest rate at which repayment is made to investors on FDs is determined based on the principal amount, tenor of investment and the frequency of payouts chosen by a particular investor. The rate of interest also varies from lender to lender. Investors can compute the total amount receivable on the maturity of the FD, as well as the interest they will receive if they choose to avail of the payout monthly, quarterly or annually.
The amount receivable on the maturity of the fixed deposit can be calculated using a FD calculator with the formula
A = P (1 + r/n) ^n*t
A indicates the amount to be received on maturity
P refers to the principal invested
r stands for the rate of interest
t is the number of years till maturity
n refers to the frequency of compounded interest.
The rate of interest receivable on a fixed deposit of Rs 1 lakh per month is dependent on the prevailing FD interest rates. Currently, the rate of interest on fixed deposits ranges from 5% to 7.5% per annum for the general public, and 5.5% to 8% per annum for senior citizens. The Rs 1 lakh interest per month will be significantly higher than the monthly interest for 1 lakh in bank in rupees that is kept in a savings account. Considering the rate of interest on an FD of Rs 1 Lakh is 7%, the investor will earn Rs 776 per month.