Fixed Deposit

Factors That Determine the Interest Rate for A Fixed Deposit


Fixed deposits are secure investment options that offer fixed interests for a fixed period of time. FDs have always been the preferred choice of many people as they are low-risk investments. Also, the guaranteed returns and flexible tenures make them quite attractive sources of fixed investments.

Advantages of Fixed Deposits

Easy to Invest 

Investing in a fixed deposit is not a very cumbersome process. In fact, they are very easy to handle and access. You can invest in FD online and even earn an additional interest rate benefit of 0.10%.

Safe investment choice

Unlike other investment options, FDs are not volatile and are not dependent on fluctuating market conditions. The interest rates remain the same throughout the tenure of the FD you choose.

High-interest rates for senior citizens

All fixed deposits offer higher interest rates for senior citizens. This increase in interest rates may range from 0.10 % to 0.35%.

Flexible interest rate options

Fixed deposits come with two options for interest rates- cumulative and non-cumulative. In the cumulative option, the interest is payable at the maturity date whereas, in the cumulative option, interest is payable on a monthly, quarterly, or half-yearly basis.

Premature withdrawal

If a person is in urgent requirement of cash, he can break his FD. This is the premature withdrawal facility and is assisted with a certain penalty, which one has to pay for breaking the FD.

Loan facility

Anyone who has a certain amount fixed in an FD can apply for a loan against that FD. The amount of loan granted is some percentage of the principal amount.

What is the interest rate for a fixed deposit?

The interest rates on FDs vary across banks. Also, the rate of interest levied on senior citizens is usually above the regular FD rates. The FD rates in India across banks range currently from 5% to a maximum of 6.5%. Even small finance banks are offering very little above this rate.

The highest interest rates are being paid by company FDs which is paying up to 7.35% for senior citizens.

How to calculate the Fixed Deposit interest rate?

Fixed deposit rates can be calculated by FD rate calculators which are available on the websites of many financiers. These calculators save you time by doing all the complex calculations and taking out the maturity amount quickly.

The FD rate calculator uses the following formula:-

M= P + P {(1 + i/100) t – 1}, where-

P is the Principal amount

i is the rate of interest per period

t is the tenure

These FD rate calculators have several advantages:-

  • They give you the exact maturity amount according to the principal amount you will be investing.
  • These FD rate calculators are free of charge.
  • In spite of the difference in the interest rates offered by different financial institutions, you can get accurate results.
  • They help you in planning your future financial decisions effectively.

A fixed deposit is a secure investment option to help you grow your savings at a pre-determined interest rate. The interest rate of a fixed deposit depends on factors such as the investment amount, investment tenor, customer category, and type of deposit (cumulative or non-cumulative deposit). You can use an online FD calculator to know the interest rate and maturity value of your FD investment instantly. Unlike market-linked investments, fixed deposits offer safety of principal amount along with features such as loan against FD, premature withdrawal facility, flexible tenors, and interest payout frequency.

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