Term deposits such as fixed deposits (FD) have pre-determined maturity value, interest rate and investment tenor. Unlike other investment instruments like mutual funds, FDs are unaffected by market fluctuations. Thus, the chances of a discrepancy between estimated returns and actual returns are zero. Estimated returns of a fixed deposit are guaranteed and can be calculated before hand.
With the internet becoming a hub of most financial activities, financial institutions now offer online tools to assist you in using the finanical products and services to the best. Fixed deposit calculator is an online tool which helps you compute your FD returns well in advance. The mechanism behind calculating maturity value is determined by certain factors.
These are –
- Principal amount – It is the sum an individual invests in FD. Minimum investment amount required is Rs. 25,000.
- Tenor of investment – The period for which the principal amount is invested is also a factor required to calculate the maturity value. The tenor usually ranges from 12 months to 60 months. Longer the investment tenor, higher is the maturity amount.
- Interest rates – Different financial institutions offer variable interest rates on fixed deposits. Based on the principal amount and investment tenor, you can avail interest rates up to 8.35%.
- Frequency of interest compounding – It could be on a monthly, quarterly, half-yearly or yearly basis. FD interest rates in India are compounded as per the frequency opted by an investor.
- TDS factor- Income generated from returns on any form of savings or invetments are subject to tax deductions. The TDS amount is charged as per the slab set by the Income Tax Department. Note that income from FD may be taxed even if the individual does not qualify with the tax slab.
By using a fixed deposit calculator, you can plan your investemnts and create a portfolio more easily.
Way to operate a fixed deposit calculator
An individual planning to invest in an FD, can make use of an FD calculator to be sure of how much to invest and for how long. Here are necessary steps to use the fixed deposit calculator-
- On opening the calculator, you first have to select ‘Customer Type’ from options –
- Existing loan customer
- New customer
- Senior citizen
- Select the nature of FD you wish to opt for (cumulative or non-cumulative)
- Insert the amount you are looking to invest
- Select a tenor of your investment
The fixed deposit calculator will immediately display the resulting maturity value of your fixed deposit.
Formula to calculate FD maturity value
Based on inputs, the formula which determines the maturity value is given here-
- A = P (1 + r/4/100) ^ (4*nt) and
- A = P (1 + r/25)4nt
Where, A=Maturity value; P= Principal amount; r= interest rate; n= frequency of compounding interest and t= investment tenor. One factor which is missing from the above formulas well as the fixed deposit interest calculator is the TDS applicability on your returns. The fixed deposit does have a link with tax deductions, which affects the sum one receives as maturity.
Impact of TDS on the maturity value
Fixed deposit earnings are subject to taxation. TDS on fixed deposit earnings is charged as applicable.
Here are few details of TDS (Tax Deduction at Source) in terms of fixed deposits-
- Income from FD is taxable if the annual interest earnings of an investor are above Rs. 10,000.
- The chargeable TDS on such FDs is 10% in the case of Indian residents.
- In case of NRIs, TDS charged on fixed deposits is 30%.
- If the FD annual income of an individual is of the taxable amount, but his overall annual income is below the taxable limit of Rs. 2.5 Lakh, he can submit Form 15G to the concerned authorities to avail a waiver on TDS.
- For senior citizens, the counterpart of Form 15G is Form 15H.
- FD interest income per year up to Rs 50,000 is tax free for senior citizens as per Section 80TTB.
You can check your eligibility and submit the required forms and documents to the authorities of the concerned financial institution. The officials will conduct a verification process of the documents. After a successful verification, you can avail an exemption from TDS.
An investor planning to invest in fixed deposits must tally the FD interest rates in India offered by several financers and determine the maturity value he is liable to earn out of it.