Fixed Deposits (FDs) rank among the most secure and common investments, particularly for conservative investors. They give a surety of return on investment and are quite easy to comprehend. Now, with digital means available, using an FD calculator is necessary for potential investors to make effective choices.
However, several factors should be taken into account to obtain the best results. In this article, we shall explore six critical factors that should be considered when working with an FD calculator.
6 key factors to check while using an FD calculator
1. Interest rate
FD calculators require you to input the rate of interest offered by the bank or financial institution. Care should be taken to refer to the interest rates from different sources as they vary greatly from institution to institution, type of FD, tenure, amount and type of investor. Banks also provide a higher rate of interest to senior citizens, so ensure you choose the right category when using an FD calculator.
2. Tenure
All FD calculators allow you to choose the tenure, which could be a couple of months or even years. The higher the tenure, the greater the interest earned. Premature withdrawal of FDs generally attracts charges, which would reduce your net returns. Make sure to properly enter the tenure in the FD calculator so you can get a correct calculation of the maturity amount.
3. Compounding frequency
The compounding frequency greatly influences the ultimate amount you are going to receive. Interest in FDs may be compounded on a monthly, quarterly, half-yearly, or yearly basis. The returns will be higher if the interest is compounded more frequently. Ensure you select the right compounding frequency available with the bank or financial institution using an FD calculator. This will provide you with a correct calculation of the interest earned and the maturity amount.
4. Tax implications
FD interest is taxable and should be included in your estimates. While the FD calculators typically show gross interest earned, they may or may not include the tax deducted at source (TDS) or the payable income tax on the interest revenue. Knowing the tax implications will present a better estimate of the net returns. If possible, ask a tax expert or use an FD calculator with tax calculations in order to project your post-tax returns more closely.
5. Extra charges
While FDs are straightforward, certain banks or financial institutions may charge you extra for these, including maintenance fees or charges for early withdrawal. You must keep an eye on these and incorporate them into your calculations. Even though calculators for FD do not normally incorporate these charges, remembering these will make your decision more accurate. Always look into the terms and conditions that apply to the FD so you won't have any surprises along the way.
6. Institution credibility
The credibility of the bank or financial institution where you are about to open a Fixed Deposit is of top priority. Although FD calculators can provide you with a good idea of the returns, they cannot evaluate the financial health of the institution. Additionally, consider checking the bank's credit rating and reviews from other customers before making your decision.
Wrapping up
In conclusion, financial planning needs to be mastered by learning about different investment instruments and their returns. An FD calculator is a valuable instrument that enables investors to correctly determine the maturity value of their Fixed Deposit. With the help of an FD calculator, one can compare FD schemes, plan finances, and make the right investment choices.
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