Opportunity Cost: What is It & Formula to Calculate It

Opportunity cost refers to the potential profit lost when choosing one option over another, highlighting the impact of decision-making on resources and gains.
OPEN FD
Secure better returns with Bajaj Finance FD
OPEN FD
4 min
08-September-2025

Every financial decision comes with a trade-off—you gain one thing but miss out on another. That’s the essence of opportunity cost. Whether it’s choosing between investments or deciding how to use your resources, understanding opportunity cost ensures smarter, more profitable decisions.

Key takeaways

  • Definition: Opportunity cost is the potential benefit lost when one alternative is chosen over another.

  • Decision-making: It helps evaluate the relative profitability or value of different options.

  • Types: Can be explicit (direct cash expenses) or implicit (non-monetary, like time or effort).

  • Business relevance: Guides resource allocation for maximum efficiency.

  • Investments: Helps investors compare potential returns across options.

If you are holding cash in a low-yield account, the opportunity cost is the higher returns you could earn from a Bajaj Finance FD offering up to 7.30% p.a. Book FD.

Fixed Deposit

  1. Trusted by over 5 lakh customers
  2. Fixed Deposits worth more than Rs. 50,000 crore booked
  3. Rated CRISIL AAA/STABLE and [ICRA]AAA(STABLE)
  4. Up to 0.35% p.a. extra interest offered for senior citizens
  5. Flexible interest payout options available - Monthly, Quarterly, Half-yearly, Annually or at Maturity

By proceeding, you agree to our Terms and Conditions

Formula for calculating opportunity cost

The basic formula is:

Opportunity Cost = Return of the Next Best Alternative – Return of the Chosen Option

Example:
If you invest Rs. 1,00,000 in an option with a 5% return while another option could have given 7%, the opportunity cost is:

Rs. 7,000 – Rs. 5,000 = Rs. 2,000

That Rs. 2,000 is what you gave up by not choosing the better investment.

By comparing FD returns with traditional savings, you will notice the opportunity cost of leaving money idle. Bajaj Finance FDs give higher yields than most savings accounts. Open an FD account now with as low as Rs. 15,000.

Opportunity cost and businesses

For companies, opportunity cost is at the heart of strategic decision-making. Should they invest in new equipment, expand operations, or train employees? Each choice excludes another. By analysing opportunity costs, businesses choose options aligned with growth goals.

Implicit costs

Implicit costs represent non-cash sacrifices. For example, using your own property for business means losing potential rental income. They don’t appear in accounts but highlight missed opportunities.

Weighing opportunity cost

This involves comparing all alternatives—returns, risks, and resources used. Only then can businesses or individuals select the most rewarding option.

Explicit costs

Explicit costs are straightforward—rent, salaries, utilities, or raw materials. Since they are recorded in financial statements, they’re easier to evaluate. Combining explicit and implicit costs gives the full picture of opportunity cost.

Instead of breaking investments prematurely, consider a Bajaj Finance FD with multiple payout options (monthly, quarterly, half-yearly, yearly or at maturity), so you can balance liquidity with growth. Book FD.

Fixed deposit variants

Highest Credit Ratings | Trusted with over 1.4 million Deposits | Assured Returns on FD
Recommended

Fixed Deposit - 60 Months

INTEREST RATES UP TO
7.30% p.a.
Invest Online

Fixed Deposit - Senior Citizen

INTEREST RATES UP TO
7.30% p.a.
Invest Online

Fixed Deposit - Age below 60

INTEREST RATES UP TO
6.95% p.a.
Open FD

Fixed Deposit - Minor

INTEREST RATES UP TO
6.95% p.a.
Open FD

Fixed Deposit - HUF

INTEREST RATES UP TO
6.95% p.a.
Open FD

Fixed Deposit - Sole Proprietor

INTEREST RATES UP TO
6.95% p.a.
Open FD

How do you predict opportunity cost?

Predicting opportunity costs requires:

  • Market analysis: Study trends and projections.

  • Risk assessment: Weigh uncertainties across options.

  • Historical data: Analyse past performance.

  • Resource evaluation: Factor in capital, time, and effort.

Conclusion

Opportunity cost reminds us that every choice has a hidden price—the benefit of the path not taken. By understanding both explicit and implicit costs, individuals and businesses can allocate resources wisely, avoid waste, and maximise returns. For everyday savers, not investing in higher-yield instruments like Bajaj Finance FD is itself an opportunity cost. With guaranteed returns, flexible tenures, and high safety ratings, FDs ensure you don’t miss out on growth while keeping your money safe. Check latest rates.

Calculate your expected investment returns with the help of our investment calculators

Investment Calculator

Fixed Deposit Calculator

SSY Calculator

Public Provident Fund Calculator

RD Interest Calculator

EPF Calculator

Gratuity Calculator

Frequently asked questions

What is opportunity cost and example?
Opportunity cost refers to the potential benefit lost when choosing one option over another. For example, if an investor puts Rs. 1,00,000 into fixed deposits instead of stocks, the opportunity cost is the potential higher returns from stocks that were foregone in favour of safer but lower-yielding fixed deposits.

What is the best example of opportunity cost?
A common example of opportunity cost is higher education. If a student spends four years in college instead of working, the opportunity cost includes the salary they could have earned during that time. This trade-off is made in expectation of better future earnings, illustrating how opportunity cost plays a crucial role in decision-making.

How is opportunity cost relevant to Fixed Deposits?

If you keep funds idle in a savings account at ~3% interest, the opportunity cost is the higher return you could earn in an FD at up to 7.30% p.a.

Invest in a Bajaj Finance FD now!

Show More Show Less

Related videos

Bajaj Finserv App for All Your Financial Needs and Goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.

Explore and apply for co-branded credit cards online.

Invest in fixed deposits and mutual funds on the app.

Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.

Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.

Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on No Cost EMIs.

Shop from over 100+ brand partners that offer a diverse range of products and services.

Use specialised tools like EMI calculators, SIP Calculators

Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or referhttps://www.bajajfinserv.in/fixed-deposit-archivesThe company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For theFD calculatorthe actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.

Show All Text