# Here’s How You Can Use an FD Calculator to Plan Your Savings

Written By Juliet D'cruz

Fixed deposits are undoubtedly among the most preferred investment options in India which is also deemed safer than several other instruments. This is because FD schemes are known to provide guaranteed returns, ensure the security of capital, and offer flexibility of tenure. However, the availability of different types of fixed deposit schemes can seem to overwhelm many when they look for an FD scheme to meet their financial goals.

Individuals need to weigh in several factors including interest rate, maturity, and tax benefits when picking an FD scheme. While this may seem complex, having a financial tool like an FD calculator can prove useful in selecting a suitable fixed deposit scheme and planning savings better. An FD calculator helps determine estimated returns on deposits and also the maturity amount at the end of tenure.

On that note, let us read along to find out how to use an FD calculator and its role in general.

How Does an FD Calculator Work?

An FD calculator is essentially an online financial tool that helps users find out the maturity amount and interest they can generate from different fixed deposit schemes. Using it individuals can also compare different fixed deposit schemes and plan their investment accordingly.

So, how does an FD calculator work?

Fixed deposit calculators typically use this formula to function:

M = P (1 + r/n)^(n*t)

In this formula,

M stands for the maturity amount

P stands for principal investment amount

r stands for annual interest rate

n stands for compounding frequency

t stands for tenure (expressed in years)

An FD calculator simplifies the entire process of computing the maturity amount based on variable combinations instantly.

Take for instance, if Pratik opens an FD account with Rs. 1 lakh for 5 years in an FD scheme that offers interest at 6% compounded quarterly.

As per the formula,

The maturity amount will be:

M = P (1 + r/n)^(n*t)

M = 100000 (1 + 0.06/4)^(4*5)

M = Rs. 1,34,872

The interest amount earned will be:

I = M – P

I = 134872 – 100000

I = Rs. 34,872

Users can enter different variables on the financial calculator based on different schemes and financial goals to understand which scheme offers the best outcome.

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## Tips to Choose the Right FD Calculator

Follow these tips to choose the most effective FD calculators for your need:

• Tip 1: Check the source of the data

A reliable FD calculator references data from reputed NBFCs and financial institutions to extend accurate results

• Tip 2: Check features and accompanying options

A reliable FD calculator must feature options that help users select and compare plans as per their needs and goals. Instead, an effective FD calculator includes features such as compounding frequency, type of deposit, TDS option, type of investor

• Tip 3: Take a look at the user interface

The calculator should have a simple user- interface to make it easier for users to navigate through the financial tool and plan their finances better.

However, it should be noted that an FD calculator is a tool that does not help compute the returns on other investment instruments or helps check CIBIL credit score to plan potential loans. In case individuals want to avail of a loan or park money in other investment options like stocks, mutual funds, etc., they should use designated apps and calculators.

## Steps to Calculate the Maturity Amount and Interest?

Here’s how you can find out the interest and maturity amount with the help of an FD calculator and the variables that align with your financial goals:

Step 1: Enter your principal amount

Step 2: Enter investment tenure

Step 3: Select an interest rate from between rates for senior citizens or normal citizen

Step 4: Choose the type of fixed deposit

Step 5: Choose compounding frequency

Step 6: Select the TDS option

Once all these steps are completed, the maturity amount and interest will appear on the screen.

Based on the outcome, users can readjust the variables to determine which combination works best for their financial goals.

Here’s How to Compare FD Schemes Using an FD Calculator

FD calculator facilitates easy comparison of different fixed deposit schemes which allows users to compare them and helps to pick the most lucrative option.

Here’s how one can easily compare schemes:

• Enter variables into the designated fields
• Principal
• Tenure
• Type of FD
• Type of customer
• Click on compare option

Reenter variables with different combinations of principal, interest rate, and tenure based on preference. The varying results will help you decides which combination offers you the highest maturity amount, and most returns, and facilitates tax saving.

However, besides these quantifiable factors, you should also weigh the merit of liquidity of FD schemes to make an informed choice and park yours in an option that facilitates hassle-free investment.

How an FD Calculator Can Help To Optimize Tax Savings?

An FD calculator can also help you optimize your tax savings and returns by choosing the right type of deposit, frequency of compounding, and TDS option.

• Opt for cumulative fixed deposits to maximize returns

Cumulative fixed deposits reinvest the accrued interest with the principal. This has a compound interest effect, which helps generate higher returns. However, the entire interest amount then becomes liable for taxation which is taxed based on one’s income tax slab.

• Opt for non-cumulative FD to optimize tax savings

A non-cumulative fixed deposit pays interest on the deposit at regular intervals payable at maturity. The simple interest approach leads to comparatively lower interest. Notably, FD holders will have to pay tax on the interest income received in a financial year as per their income tax slab. However, they can claim tax deduction under Section 80TTB and the limit for it is up to Rs. 50000 for senior citizens and up to Rs. 10000 for others.

• Go for quarterly or half-yearly compounding FD options to balance returns and tax savings

Typically, quarterly or half-yearly FD compounding options help generate higher returns when compared to those compounded yearly or monthly. However, this also means the deposit holders will also pay more than the FD interest income.

• Select a TDS option as per the income tax slab

In case your income tax slab is over 10% and the interest income surpasses Rs. 40000 for regular individuals and Rs. 50000 for senior citizens in a year you should select the TDS option and pay applicable taxes. This will initiate TDS from interest income but lower your overall tax liability for the prevailing year.

However, if one’s tax slab is less than 10% of their total interest and does not exceed Rs. 40000 (normal customers) or Rs. 50000 (senior citizens) in a given year, they should select the no TDS option. This will ensure no TDS is deducted from their interest income at source, but they will still have to declare the income and pay taxes as per the applicable slab.

Keeping these aspects in mind one can compute an FD calculator to plan your investments and savings.