Fixed Deposit (FD) Calculator

What is a Fixed Deposit (FD)?

A Fixed Deposit (FD), also known as a Term Deposit, is a financial instrument provided by banks which provides investors a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account. It's known as a 'fixed deposit' because the money cannot be withdrawn before the time period ends.

The Fixed Deposit Interest Formula

The formula for calculating FD interest is:

\[A = P(1 + \frac{r}{n})^{nt}\]

Where:

• \(A\) = Final amount
• \(P\) = Principal amount (initial deposit)
• \(r\) = Annual interest rate (in decimal form)
• \(n\) = Number of times interest is compounded per year
• \(t\) = Number of years

Step-by-Step FD Interest Calculation

1. Identify the principal amount (P), annual interest rate (r), compounding frequency (n), and term (t).
2. Convert the annual interest rate to decimal form (divide by 100).
3. Divide the annual rate by the compounding frequency to get the periodic rate.
4. Multiply the compounding frequency by the number of years to get the total number of compounding periods.
5. Plug these values into the FD interest formula.
6. Calculate the final amount (A).
7. Subtract the principal from the final amount to get the interest earned.

Example Calculation

Let's calculate the FD interest for a principal of $10,000, an annual interest rate of 5%, compounded quarterly, over 2 years:

1. \(P = \$10,000\), \(r = 5\% = 0.05\), \(n = 4\) (quarterly compounding), \(t = 2\) years
2. Periodic rate = \(0.05 \div 4 = 0.0125\)
3. Total compounding periods = \(4 \times 2 = 8\)
4. \(A = 10000(1 + 0.0125)^{8} = \$10,510.00\)
5. Interest earned = \$10,510.00 - \$10,000 = \$510.00

Visual Representation

The green portion represents the principal ($10,000), and the blue portion represents the FD interest earned ($510.00).