Fixed deposits (FDs) are a common savings tool opted for by most Indians. A survey conducted by the Securities and Exchange Board of India (SEBI) revealed that approximately 95% of households in India preferred FDs for savings to get predetermined guaranteed returns. Since fixed deposits are not market-linked, you will always get a fixed interest rate on your FD savings. Also, fixed deposits earn higher returns than a traditional savings account. Besides assured returns, non-cumulative fixed deposits provide a regular source of income. These fixed deposits help provide financial stability in your post-retirement years. The FD interest that you earn is paid out at regular intervals, namely monthly, quarterly, half-yearly, and annually.
Interest Payout Frequencies
If you open an FD at a financial institution, you get interest on the deposit amount. You have the option of choosing at which frequency you want the interest payout. The various interest payout frequencies available are given below:
1. Monthly Interest Payout
In this type of payout, the interest on your fixed deposit is paid after each month. This is best suited for individuals who would like to take care of their monthly expenses. In this type of payout, the first interest will be paid on the last day of the next month in which the fixed deposit is booked. For example, if you booked an FD on April 10th and have requested a monthly payout, it will be paid at the subsequent end of the month, i.e., May 31st, June 30th, and so on.
2. Quarterly Interest Payout
You will be receiving the interest payout from the lender on this type of scheme on a quarterly basis. This means that you will be receiving the interest payout every 3 months during your overall fixed deposit term.
3. Half-Yearly Interest Payout
Here, the payout frequency of the interest on your FD is every 6 months. For example, if you choose an FD for a term of 10 years, you will get the interest payout 19 times during this time period. For any fixed deposit with a tenor of 6 months or above, the interest will be computed on a quarterly basis. This basically means that the interest earned in the previous quarter will be added back to the principal amount for interest calculation.
4. Annual Interest Payout
Here, you receive the interest on your fixed deposit once every year during the term. The interest amount is computed on a quarterly basis in this type of frequency.
These are the four interest-payout frequencies available. It is important that you choose the payout frequency according to your needs and requirements.
How do I calculate fixed deposit interest?
Now that you know about the interest payout frequency, it is important to know the method by which the interest is calculated as well. There are two factors that can affect the overall returns of your FD: interest payout frequency and interest rate. FD interest rates are periodically compounded, and you can choose this frequency. The calculation is done in the following way:
A = P*(1 + r/4/100)*4n
A = Maturity amount
P = Amount deposited
R = FD interest rate
N = Frequency of interest payout compounded
You can calculate the total interest amount that you will get by subtracting the maturity amount from the initial principal amount. A fixed deposit calculator is another way in which you can get a rough estimate of the interest returns that you will get. For example, you can calculate 1 Crore FD interest easily with an FD calculator, whereas manual calculations can be tedious and time-consuming. All you need to do is fill in a few details, and you will get the interest amount and maturity value in seconds. The basic details needed are:
1. Type of customer
2. Type of fixed deposit
3. Interest payout frequency
4. Fixed deposit date
5. Deposit amount
6. The tenor of the fixed deposit
Kindly keep in mind that a higher principal amount for a longer term will help you get higher returns. Make sure to do proper research before you pick the financial institution with whom you want to book an FD account. The FD interest rate should not be the only deciding factor when choosing an FD scheme. Compare the various features and benefits of different fixed deposit schemes as well.
Additionally, make sure to pick an interest payout frequency that aligns with your financial objectives and goals. A monthly payout frequency helps you with a steady stream of income, whereas an annual payout frequency helps you fulfill a short-term goal as it provides a lump sum of money at the end of a year.