Today, you have numerous high-yielding investment options at your disposal. Among them, one of the popular and stable options is a Fixed Deposit (FD). It is an excellent pick for those who intend to secure their capital and multiply their wealth without taking too many risks.
FDs not only offer you guaranteed returns but are highly safe. Most notably, no market fluctuations affect this type of financial investment.
However, to maximise the advantages of an FD investment, you need to choose the right maturity date. But the question is, what is the ideal period of an FD? Let’s find out.
How to choose the suitable maturity date for the FD investment?
An FD’s maturity is when the investor receives the principal along with the interest earnings. There is no stringent method behind computing the maturity date for your FD investment. It depends on your financial goals, liquidity requirements, and personal preference.
However, the interest you earn depends on the maturity period. A higher investment tenure will generally result in a greater interest rate and vice versa. So, you must be careful while choosing the maturity date and finding the ideal tenure.
Two types of FDs are there based on the interest pay-out mode: cumulative FDs and non-cumulative FDs. In non-cumulative FDs, you get interest pay-outs at regular intervals, whereas you get interest pay-outs at the time of maturity of the cumulative FDs. Those who do not require regular cash flow and want money for long-term financial goals can go for cumulative deposits. On the other hand, investors who want to fund recurring expenses can choose non-cumulative FDs.
Refer to the table for the base rates for FDs which vary depending on the time you are holding the investment.
Tenure in months
>=12 to <24
Cumulative plan: 7.00%
Indicative yield: 7.00%
Monthly Income Plan: 6.80%
Quarterly Income Plan: 6.85%
Yearly Income Plan: 7.00%
>=24 to <36
Cumulative plan: 7.35%
Indicative yield: 7.62%
Monthly Income Plan: 7.10%
Quarterly Income Plan: 7.15%
Yearly Income Plan: 7.35%
>=36 to <60
Cumulative plan: 7.45%
Indicative yield: 8.02%
Monthly Income Plan: 7.20%
Quarterly Income Plan: 7.25%
Yearly Income Plan: 7.45%
*It is important to note that the above-mentioned base rates are subject to change. Under the cumulative FDs, you can see how the interest yield increases with tenure.
How to calculate the FD maturity amount using the FD calculator?
To set the ideal maturity date, you first need to figure out the total earnings and to do that, you can use an FD calculator. Here are the steps involved in gauging the FD maturity amount through an FD calculator:
Step 1: Mention the deposit amount you want to invest, interest rate, and tenure.
Step 2: Now state whether you are a senior or a regular citizen.
Step 3: Select the pay-out mode- whether you want the pay-out at maturity or monthly or quarterly regular intervals.
After you have filled out all the details, this tool will show the FD interest rate, maturity amount, and overall earnings.
Formula used to calculate FD maturity amount
There are two formulas involved in computing FD maturity amounts. One calculation includes simple interest, and the other uses compounding interest.
The formula to compute maturity amount using simple interest –
● M = P + (P x r x t/100)
Here P is the principal amount/invested amount, t is the tenure (in years), and r is the interest rate per annum.
The formula to compute maturity amount using compounding interest-
● M = P ((1 + r/n) ^ (n x t)
Here, P is the invested amount, r is the interest rate, r is the tenure, and n is the compounding frequency per year.
Benefits of Using an FD Calculator
Here are the benefits of using an FD calculator:
● Error-free result: Using the FD calculator, you will get an accurate calculation of the maturity amount, total investment, and total interest.
● Time-saving: The FD calculator helps avoid tedious and complex calculations and enables you to perform long calculations quickly, saving time.
● Compare different FDs: You can try the different combinations of the variables to choose an option that caters to your requirements. As you alter the variables, you can see that the interest rates and maturity amounts are also changing. This helps you to compare different fixed deposit offerings from different financial institutions, enabling you to make an informed decision.
● Free of cost: You do not have to bear any charge for accessing the FD calculator.
What happens if the FD is not claimed on maturity?
The process involved when you do not claim an FD on the maturity date varies from one bank to another based on varied rules and regulations. Maximum banks follow the same method: either they pay the amount to a prevailing savings account rate or renew the unclaimed FD. The decision entirely relies on the bank.
However, if you have yet to claim the FD for more than two years, the bank executives will try to reach out to you. If the bank cannot reach the investor, the FD will automatically renew at the current fixed deposit interest rate.
FDs are a secure investment option. It promises fixed returns, and you do not have to monitor this investment instrument frequently. However, one thing that must be considered is the maturity date if you want to make the most out of your investment.