Fixed deposits provide fixed returns to the investors. However, the investors must also be aware of the kind of returns that they should expect after locking in a fixed amount for a fixed tenor. The returns of a fixed deposit are dependent on a few factors viz. tenor, fixed deposit type, and amount. As you increase the tenor, the interest rate also increases, which improves the returns as well. However, it is also necessary to predict your returns accurately to plan your finances. Some parameters determine the future value of your deposited amount.
Let us now see these parameters in detail:
Parameters that determine the future value of your fixed deposit:
- Interest rate – It is the most significant factor that determines the returns that you would be getting at maturity.
- Tenor – Tenor determines the interest rate of an FD. Generally, the interest rate gets better when you choose a longer tenor.
- Fixed deposit type – Fixed deposits are basically of two types i.e., cumulative and non-cumulative. A non-cumulative fixed deposit pays the interest periodically, whereas a non-cumulative fixed deposit pays all the accumulated interest at the end of the tenor. Therefore, the interest rates offered on cumulative FDs are better.
- Principal amount – If you invest a huge amount in an FD, then the returns will be better as the interest earned on a larger principal amount will be higher than on a lower principal amount.
Now, let us see how the returns of a fixed deposit are calculated.
Manual calculation of fixed deposit returns
Fixed deposit returns can be calculated manually with this formula:
M = P (1 + r/n) ^ (nt)
Where – M is the final returns that you will receive at maturity
P is the initial deposited amount
r is referred to as the interest rate
n denotes the number of times the interest was compounded
and t denotes the tenor.
Some banks and NBFCs also provide online FD calculators that make it easy for you to predict the exact returns. You can locate these fixed deposit calculators on their official websites. Bajaj Finance also provides an FD calculator on their official website that informs you of the interest rate and final returns as per the customer type, tenor, and fixed deposit type selected by you.
How you can enhance the future value of your FD investment
Invest in company FDs
The company fixed deposits such as Bajaj Finance FD are providing at least 1% to 2% extra interest rates than regular bank FDs. Bajaj Finance FD is providing high-interest rates up to 8.35%, which goes up to 8.70% for senior citizen fixed deposits. Therefore, you can invest in such high-paying fixed deposit schemes to enhance your returns.
Re-invest interest by using the cumulative option
By selecting cumulative fixed deposits, you choose to avail of all the interest calculated on your deposited amount only when your fixed deposit matures. As a result, the interest attracted by the fixed deposit in every quarter gets added to the principal amount for the next quarter and the interest for the next quarter is calculated on this principal amount. This significantly increases your overall returns.
Therefore, the future value increases when you select cumulative FDs of longer tenors and you can also reinvest in the cumulative fixed deposits along with the gained interest to build a huge corpus.
If you choose to auto-renew your fixed deposits after maturity then a higher interest rate will be offered. This will enhance the future value of your invested amount. For example, Bajaj Finance FD offers a 0.10% extra interest rate if you select the auto-renewal option.
Laddering and multi-deposit
An investor might have to break his fixed deposit during an emergency or for satiating immediate financial needs. However, if he chooses to ladder his investments by investing smaller amounts in multiple fixed deposits and for different tenors, then he only needs to break one or couple of the fixed deposits to fulfill his financial requirement. Moreover, laddering also helps an investor to reduce the risk of re-investing an FD at a lower interest rate.
Bajaj Finance allows its customers to book multiple FDs of different principal amounts and tenors with a single cheque. As a result, they can use this multi-deposit facility to ladder their investments conveniently.
Apart from this, Bajaj Finance Fixed Deposits are highly rated by ICRA’s MAAA/stable and CRISIL’s FAAA/stable rating which makes them safe from market risks. Also, over 2.5 lakh customers have invested in Bajaj Finance FD and the total deposit book spans over 16 thousand crores.
About the Author
Gaurav Khanna is an experienced tech enthusiast, digital marketer, and blogger who is well known for his ability to predict market trends. Check out his blog at HighlightStory