Curious about how FD interest is calculated? Knowing this helps you plan better, whether it’s for short-term goals or long-term savings. It ensures clarity when comparing returns across amounts and tenures—making your investment decisions smarter and more informed.
If you are thinking of investing in a safe and secure investment option but not sure if you will get inflation-beating returns?
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Key Pointers
- Learn the difference between simple and compound interest to compare returns more accurately across FD tenures and types.
- Cumulative FDs reinvest your earnings, allowing your money to earn interest on interest—ideal for long-term wealth creation.
- The Bajaj Finance FD Calculator helps you estimate maturity value and compare different FD scenarios instantly and accurately.
- Your FD interest rate depends on tenure, customer type (senior citizen or not), payout mode, principal amount, and issuer credibility.
- Use techniques like FD laddering, choosing cumulative options, and leveraging senior citizen rates to optimise your returns safely.
Types of Interest on Fixed Deposits
FDs offer two ways to earn interest—Simple Interest and Compound Interest. Let’s break them down.
Simple Interest: Straightforward and predictable
Here, interest is calculated only on your principal amount. It stays the same throughout the FD tenure and is paid out monthly, quarterly, or yearly.
Example:
- Principal (P): Rs. 1,00,000
- Interest Rate (R): 6% p.a.
- Tenure (T): 2 years
Formula:
SI = (P × R × T) / 100 = (1,00,000 × 6 × 2) / 100 = Rs. 12,000
So, for a Rs. 1 lakh deposit at 6% p.a. for 2 years, you earn Rs. 12,000 in interest.
Compound Interest: Where your money earns on itself
Compound interest grows your money faster. You earn interest not just on your principal, but also on the interest you’ve already earned. It’s ideal if you’re not withdrawing periodically.
Example:
- Principal (P): Rs. 1,00,000
- Interest Rate (R): 6% p.a. (compounded annually)
- Tenure (T): 2 years
Formula:
A = P(1 + R/N)^(N×T)
A = 1,00,000 × (1.06)^2 ≈ Rs. 1,12,360
Compound Interest Earned = Rs. 12,360 |
Why compound interest wins?
Because as per the above given example you earn Rs. 360 more than simple interest over the same tenure. That adds up over time!
Did you know Bajaj Finance offers FD interest payout options like monthly, quarterly, half-yearly, yearly or on-maturity!
So, what are you waiting for? Open an FD now!