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Different Modes Of Interest Calculation In A Fixed Deposit

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By Author: Neha Sharma
Total Articles: 218
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"Fixed Deposits are one of the most popular investments for people to make. Now with the digital revolution, booking a fixed deposit online is very convenient and can be done even with your mobile phone.

While booking a fixed deposit, one of the things that needs to be considered is the type of interest calculation on the principal amount. Depending on the type of interest calculation, the final outstanding amount will change.

One way to find out the total interest on your fixed deposit and the interest under different alternatives is to use an FD interest calculator.
A fixed deposit calculator will calculate the total interest earned for a given set of conditions of a fixed deposit. You need to input the principal amount, the period of the fixed deposit and the type of interest and the FD calculator will show the rate of interest and the total interest payable. This can help you plan and make decisions about the FD tenure and the amount to be invested.

Different modes of interest calculation:

1. Cumulative:
This is the most common type of interest calculation on a fixed deposit. In this type, the interest is calculated quarterly and added to the principal amount. For the following quarter, interest is compounded i.e it is calculated on the principal outstanding and the interest credited for the earlier quarter. The interest earned is highest under this option.

2. Quarterly payout:
Under this type, interest is calculated at the end of every quarter and paid out to the savings account linked with the fixed deposit. This is one way to ensure some income from the fixed deposit.

3. Monthly payout:
Under this type, interest is calculated at the end of every quarter and paid into the savings account linked with the FD on a fixed day every month. This option is generally preferred by senior citizens who need regular and consistent income.

4. Simple interest for Short term FDs:
For fixed deposits of a very short duration, banks generally calculate interest on a simple interest basis. Even for fixed deposits longer than a quarter but less than 6 months, interest is calculated for the entire tenure of the deposit on a simple interest basis.

Using a fixed deposit calculator is both simple and free. With it, you can plan your investments so that you get the maximum income from your investments.

Author Bio:- Neha Sharma is a finance student who loves to write in her free time. She has spent considerable time researching about FD calculator. Through her work, she has explained different modes of FD interest calculation

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