 Deposit Amount
Rate Of Interest
Period
(In Months)

#### Result

Monthly Interest
Quarterly Interest
Half Yearly Interest

Maturity Value (Approx.):

### Reinvestment Deposit Interest

Fixed deposits are one of the most popular and convenient investment options in the market, due to their assured returns. But, have you ever wondered how interest on fixed deposit amounts are calculated in banks? How are the interest rates calculated and what factors determine the final maturity amount? Here is a guide on how to calculate returns on your Fixed Deposits.

### Reinvestment deposit interest compounded quarterly :

The following formula is used for calculating maturity amount for your fixed deposits- A = P (1 + (r/400))^n

Where “A” is the maturity amount, “P” the deposit amount, “r” is the rate of interest and “n” is the number of quarters for the chosen period.

For example, if you invest Rs.2 lakh for a period of 3 years at an interest rate of 10%, putting the values in the above formula would get you:

A= 200000 x (1+(10/400)^ (4 quarters x 3 years) = Rs.2,68,978 Thus, interest earned on the deposit for 3 years period on quarterly compounded basis is Rs.68,978/-.

For the ease of calculation you can take aid of our online financial calculator, where you just need to fill the values and tenor for which you propose to keep the funds with the bank; the calculator displays the maturity value along with the rate offered by the bank for the chosen tenor.

### The factors affecting the interest earned and the maturity amount are -

• Principal amount - The interest earned is directly proportional to the principal amount. Higher the money deposited, higher the interest.

• Rate of interest - Higher the rate of interest, higher the interest earned.

• Deposit type - There are two kinds of fixed deposits. Cumulative deposits (quarterly compounded) allow interests to be paid at maturity and Fixed Deposits (interest non-cumulated) allow interests to be paid monthly or quarterly, as per your choice. Cumulative deposits enable you to earn more as the interest income is reinvested. If you choose to take monthly interest the rate of interest would be discounted at the same rate and hence, the interest quantum earned is slightly less than quarterly pay- out. If you choose quarterly interest pay out option, the formula to arrive at interest quantum I is PxTxR/(365@x100) where P is principal invested, T is term in days, R is rate of interest (@366 days in a leap year).

• Senior citizen (Age >=60 years) - Senior citizen get a slightly higher rate of interest (usually 0.5% more) than others because of their dependence on interest for their livelihood.