Fixed deposits are a popular avenue of investment for many investors. The guaranteed returns offered under the scheme make it sought-after among investors who want stable returns in their portfolios. Moreover, you can choose a flexible tenure as per your needs and invest as per your financial goals.
When you invest in a fixed deposit scheme, the amount payable on maturity is determined beforehand. Since the lending institutions provide a fixed interest rate, you can calculate the maturity amount even before investing in the scheme.
But do you know how to calculate your maturity amount?
Calculating the fixed deposit maturity amount
There is a simple formula to calculate the maturity amount, which is as follows:
Maturity amount = P * (1+R/100)^T
In this formula,
1. P is the principal amount, i.e., the amount that you deposit.
2. R is the fixed deposit interest rateexpressed as a percentage.
3. T is the term of the deposit.
So, if you deposit Rs. 50,000 for a period of 3 years at a fixed deposit interest rate of 7%, the maturity amount would be calculated as follows:
Amount = 50,000 * (1+7/100) ^3 = 50,000 * (1.07) ^3 = Rs.61,252 (rounded-off)
If, however, the compounding frequency changes, the formula also changes. The compounding frequency can be half-yearly or quarterly. In such cases, you will have to calculate the fixed deposit interest rate every six months or every three months. Then, the formula will be:
Maturity amount = P * (1 + R/N*100) ^ N*T
In the formula, ‘N’ is the number of times the interest is compounded.
So, in the above example, if you deposit Rs. 50,000 for 3 years at an interest of 7% and the interest is compounded half-yearly, the amount would be calculated as:
Amount = P * (1+ R/N*100) ^ N * T = 50,000 * (1 + 7/100*2) ^ 2*3 = 50,000 * (1.035) ^ 6 = Rs.61,463 (rounded-off)
Since you compound the interest more frequently, the interest earned is higher. Consequently, the maturity amount also increases.
The fixed deposit calculator
When calculating the maturity value, you can use the formula above and find the value. However, if you want to check it instantly, you can use the fixed deposit calculator.
The fixed deposit calculator is an online tool that helps you calculate the interest and the maturity amount that you would receive after the deposit term.
To use the calculator, you just need to enter the amount of deposit and the policy term. Since the financial institution fixes the interest, it would be automatically input into the calculation.
Once you enter the details, the calculator estimates the maturity amount instantly. The fixed deposit calculator, thus, is an effective tool that makes calculations quick and straightforward.
Cumulative and non-cumulative fixed deposits
Fixed deposit schemes can be of two types — cumulative schemes and non-cumulative schemes. Here is what these schemes mean.
1. Cumulative fixed deposits
Under the cumulative deposit schemes, the interest earned during the deposit tenure gets accumulated. You then receive the accrued interest when the deposit matures. The fixed deposit calculator is helpful for cumulative schemes wherein you can calculate the total accrued interest and the maturity amount.
2. Non-cumulative fixed deposits
Under this scheme, you receive the interest as and when it is compounded. So, if the fixed deposit pays annual interest, you will receive it every year. Similarly, in the case of half-yearly or quarterly interest calculation, the interest would be paid half-yearly or quarterly, as the case may be. On maturity, you will receive the last interest installment and the principal amount.
Premature withdrawal and maturity amount
The maturity amount that you calculate would be affected in the case of premature withdrawals. Premature withdrawal means withdrawing the deposit before the tenure is up. Suppose you make a deposit for three years. If you draw the money out before the end of that period, it would be called a premature withdrawal.
Premature withdrawal is bad for the deposit because it has two effects:
1. It lowers the interest rate.
2. The financial institution charges a penalty for the early redemption.
If you withdraw prematurely, the financial institution calculates the interest rate applicable to the term you stayed invested. This interest rate might be lower than the actual interest rate at which you opened the fixed deposit scheme. In such a case, the lender would lower the overall fixed deposit yield interest rate.
For example, say you choose a term of 5 years where the interest rate is 9.20%* p.a.. Suppose you redeem the scheme prematurely after three years. If the institution pays 7% on a 3-year deposit, you will not get a return at the rate of 7.5%. The interest would be calculated at 7% in premature withdrawal since you stayed invested only for three years.
Moreover, since you are redeeming earlier than stipulated, the financial institution also charges an early redemption penalty. This penalty is expressed as a percentage that further reduces the interest rate that would be payable.
So, in the earlier example, if the lender charges a penalty of 0.50%* p.a. for premature withdrawal, the interest would be calculated at 6.5%, further reducing the maturity amount.
Tips for a high maturity value
If you are looking to maximize the maturity value of your fixed deposit, here are some tips that you should follow.
1. Choose a cumulative scheme so that the interest gets accumulated and you earn higher interest in the future.
2. Choose a tenure that gives the maximum fixed deposit yield interest rate.
3. If you are a senior citizen, you can enjoy an additional interest rate on your deposit.
4. Do not withdraw from the fixed deposit schemeprematurely. It hampers the returns and does not allow you to enjoy the full potential of the deposit.
Shriram Finance fixed deposit scheme
Shriram Finance is a leading financial institution that offers interest rates of up to 9.20%* p.a. You can choose any tenure between 12 and 60 months. Shriram FD is accredited with [ICRA]AA+ (Stable)” by ICRA and "IND AA+/Stable" by India Ratings and Research.
If you are a senior citizen, the fixed deposit yield interest rate increases by 0.50%* p.a. The Shriram Finance fixed deposit calculator helps you calculate the maturity amount whether you choose the cumulative or the non-cumulative fixed deposit scheme.
So, understand how to calculate the maturity value and how you can aim for the highest value on your fixed deposit. Choose Shriram Finance fixed deposit for attractive returns and a flexible investment scheme.