There are two methods to calculate interest on fixed deposits- simple interest and compound interest. Let us look at both of them.
Simple Interest FD Formula
The formula for simple interest is;
SI = P x R x T / 100
Where,
SI = Simple interest
P = Principal amount (amount invested)
R = Rate of interest (in %)
T = Tenure of the fixed deposit
Let us assume, you invest a sum of ₹15,000 for 5 years at 10% interest rate per annum.
On maturity, the simple interest you earn will be:
₹15,000 x 10 x 5 / 100 = ₹7,500
Therefore, the total maturity amount is ₹22,500 (₹15,000 + ₹7,500)
Compound Interest FD Formula
The formula for compound interest is;
A = P (1+r/n) ^ (n*t)
Where,
A = Maturity amount
P = Principal amount
r = Rate of interest (in decimals)
n = number of compounding in a year
t = number of years
Let us assume, you invest ₹10,000 for 3 years at 10% interest rate compounded quarterly.
At the time of maturity, the calculations are as follows:
A = 10,000 [1+ (0.10/4)] ^ (4*3)
A = 10,000 (1 + 0.025) ^ (12)
A = 10,000 (1.025) ^ (12)
A = ₹13,449 (approximately)
Thus, compound interest earned over 3 years comes to ₹13,449 - ₹10,000 = ₹3,449.
FD interest rates calculator uses the compound interest formula to calculate FD interest earned and the final maturity amount.
