Fixed Deposits (FDs) are popular investment avenues in India due to the financial security and stability they offer in the form of guaranteed returns. They offer reliable rates of return even during turbulent market conditions.
FDs are primarily issued by banks and Non-Banking Financial Companies in India. While the basic features remain the same, small finance banks and NBFCs usually offer a higher rate of interest than traditional banks. These additional returns are a compensation for the higher risks associated with microfinance banks or NBFCs.
However, all FDs are subject to interest rate risks caused by changes in macroeconomic conditions like inflation, monetary policies, liquidity etc. it is also important to note that, with an increasing number of banks going kaput every year, it is imperative to check the credit ratings of the financial institutions you wish to invest in.
But irrespective of all the ‘ifs’ and ‘buts’, FDs carry a relatively lower risk component as compared to other financial instruments.
Now let us understand how interest income is calculated.
FD interest computation
The primary tool at your disposal for interest income calculation is the FD interest calculator. Some of the authorized institutions offering FDs like Bajaj Finance have set up this tool on their respective websites. So before making an investment you know how much interest income you will earn on a principal amount invested for a certain time period.
FD interest calculators do the complex mathematical calculations for you involving multiple variables. They enable comparative analysis of FD interest rates offered by different institutions.
Input the following in the FD interest calculator
Customer type - New / Existing / Senior Citizen
FD Type - Cumulative / Non Cumulative
Once above parameters are entered, total maturity amount inclusive of interest income displayed on screen.
Interest rates vary for different combinations of above parameters.
The formula inbuilt in the FD interest calculators is
A = P [ 1 + r/n ] ^ n*t
A - Total maturity proceeds
P - Principal amount
r - applicable rate of interest
n - interest payout frequency
t - Total investment tenure
Lower the period of investment, lower will be the FD interest rate.
FD interest rate for any time period will be higher for senior citizens.
If you are opting for a Systematic Deposit Plan (SDP) then use the SDP calculator. The three important parameters to be inputted in this calculator are deposit amount per month, investment period and deposit frequency apart from customer type and FD type. The resultant maturity amount inclusive of interest earnings will be displayed on screen.
However, please note that Return on Investment calculated by online term deposit calculators will vary up to 4 basis points from actual rates offered.
Thumb rule: Invest your money in an FD offering the highest rate of return.
Other factors to be considered for FD investment are:-
Credibility of the issuing authority - Financial institutions with CRISIL/ICRA ratings of ‘AAA’ recommended for FD investments. For example, Bajaj Finance FD which has received ratings of FAAA/Stable by CRISIL and MAAA/Stable by ICRA.
Availability of premature withdrawal facility
Loan Against Security option
Multi-Deposit schemes, like in the case of Bajaj Finance FD where you can invest in multiple FDs with a single payment cheque.
Easy online application process
Highest FD interest rates in India
There are many players in the market who offer attractive FD schemes. The current annual FD interest rates are in the range of 6% - 7%.
As of January 2021, Bajaj Finance is one of the leading NBFCs of India offering attractive returns on their FD schemes. Their senior citizen FD interest rate is 7.25% per annum - higher than that offered by other financial institutions. They also provide additional 0.10% returns to non-senior citizens booking an FD online. Their unique SDP schemes are suitable for lower income households willing to earn stable returns on their investments. With ease of online FD application process, Bajaj Finance FD is highly recommended for investment purposes.