Fixed Deposit: Meaning, Benefits, Uses and estimating your returns on them

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Fixed deposit is a traditional financial instrument that is offered by various banking and non-banking financial sectors. It provides a higher rate of interest if compared to the savings account and is considered safe and secure, unlike the mutual funds. However, the only exception is that the investor cannot make a premature withdrawal before the lock-in period.

A large number of people in the country invest in various fixed deposit plans to grow their savings. But, in spite of all the positive aspects associated with this investment option, making the right choice can be a tedious process. Therefore, to make the process easier you can use a fixed deposit calculator.

Benefits & Uses of investing in Fixed Deposits

Safe and Secure Investment Option

Investing in fixed deposit is always considered as the safest and secure option in the market as it provides a guaranteed return to the investor. It is one of the traditional financial instruments that has lived up to its mark when it’s about trust.

Provide Coverage against Deposit

The investors get insurance coverage against the fixed deposit up to Rs. 5 lakhs. This coverage is provided by the Deposit Insurance and Credit Guarantee Corporation which is a subsidiary of the RBI.

Encourages Saving Habit

Opting for a fixed deposit can encourage the saving habit of an individual as it provides a good balance between spending and future plans. Since investment option tends to be of risk-free nature, therefore, it propels people to invest in this type of deposit schemes.

Benefits of Tax Exemption

The fixed deposit provides the investors with the benefit of tax exemption. However, in order to avail the benefit of tax exemption the investors have to invest over Rs. 1.5 lakh in accordance with the Income Tax Act 1961.

Flexibility in Interest

An investor earns an interest rate on fixed deposits in two ways that are cumulative and non-cumulative. The cumulative interest rate helps in further the earning while opting for the non-cumulative will give you a quarterly or monthly return.

Simple to Calculate

It is very easy to calculate the return, with the help of a fixed deposit calculator. You don’t have to go for a complex calculation and as it works on a simple and specific method.

How you can Estimate Returns by Using a Fixed Deposit Calculator

Using a fixed deposit calculator may not give you a lucrative return, but it is the safest avenue to step ahead with a calculative approach. By using a fixed deposit calculator, you can evaluate the interest rate before investing in this option. During the time of the calculation of return on investment, both the simple and compound interest rate is taken into account. While the simple interest is calculated on the initial invested amount, the compound interest is calculated on the principal amount. Moreover, calculating the interest using the fixed deposit calculator online not only gives a precise result but also makes it easier for the investor to calculate the maturity amount on investment.

The FD calculator calculates the interest rate based on certain inputs like the deposit amounts, tenure of interest and frequency of the compound interest rate. Just like taking other financial decisions, investing in a fixed deposit involves estimating a budget and making it work in unison with your financial goal. It also helps you in deciding whether you should continue with your present fixed deposit plan or switch to some other scheme.

How to use a Fixed Deposit Calculator?

The fixed deposit calculator is designed with a user-friendly approach for the easy calculation of fixed deposit rate. It not only obliterates the need for a manual calculation but also provides accurate results. Even a spreadsheet is no match for an online fixed deposit calculator in terms of convenience. So, here are some steps to use a fixed deposit calculator.

  • As the first step, the user needs to select the customer type from the given options, i.e. whether he belongs to the category of Existing Customer, New Customer or Senior Citizens.
  • He has to select between the cumulative type or non-cumulative type of fixed deposit.
  • Choose the amount you want to invest
  • Mention the time period for which you want to invest in a particular fixed deposit scheme. The calculation can be done both on a monthly and yearly basis.
  • Finally, select the calculate option.

Once you enter all the information correctly, the fixed deposit calculator will automatically calculate the rate of interest that you will be going to earn during the time of maturity. Moreover, a comprehensive calculation of fixed deposit can also be done following the same procedure for comparing the interest rates of different plans.

To Conclude

Fixed deposit is always a preferable option to the investors for its safe and secure return. However, there are various financial institutions that provide a varied rate of fixed deposit. So, it is always best for an investor to step ahead with a calculative approach. Calculate the various fixed deposit rates using a fixed deposit calculator and then only choose the one that suits you.

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