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Term Deposit Calculator

Term deposits are an investment instrument where a specific sum of money is deposited at an agreed rate of interest for a fixed period of time. It is a popular form of investment, given that its rates are majorly unaffected by market fluctuations. Typically, the amount that lies in an FD can only be withdrawn at the time of maturity – or earlier with a penalty applicable. Term deposit accounts can generally be opened by individuals, partnership firms, HUFs/specified associations, private and public limited companies, societies, trusts etc. The facility can be availed at financial institutions such as banks, non-banking financial companies, post offices, credit unions and building societies.

Term deposits are popular among conservative, low-risk investors, who seek capital security and fixed returns. Safety of the principal amount invested remains the most crucial aspect for such investors. Also, retirees who need fixed, assured and regular income have been seen relying on bank fixed deposits. While fixed returns and safety go well with this audience, the simplicity of operation also makes it a trustworthy investment avenue.

Features of Term Deposit

Some of the important features of term deposits are as follows:

  • Fixed interest rate: The interest rate for term deposits remains fixed for the whole duration of the investment, and is not affected by market fluctuations. Also, banks provide an additional interest to senior citizens, regardless of the investment tenure.
  • Safe investment: Given that the interest rates of term deposit are not impacted by the changes in the economy, it remains to be one of the safest investment options available. Fixed deposits offered by public sector banks are generally viewed to be even safer on account of them being backed by the government.
  • Flexible tenure: Individuals can benefit from flexible tenure options in case of fixed deposits. The tenure of the investment can range from 7 days to 10 years. The applicant can choose a deposit tenure on the basis of his or her needs and requirements.
  • Penalty for premature withdrawal: Banks generally do not permit depositors to break term deposit before the completion of its tenure. However, if an entity is able to produce a reasonable cause, the bank may allow premature withdrawal for 0.50-1% penal interest on investment.
  • Interest income taxable: The interest income from term deposits is fully taxable. It will get added to the depositor’s total income and get taxed at slab rates applicable to the individual’s total income.
  • Loan against deposits: Banks generally allow individuals to avail loans against a certain percentage of the principal amount (of the term deposit). Most banks allow users to take loan in the range of 70% to 90% of the amount deposited.

Types of Term Deposits

Term deposits can be further classified into fixed deposits and recurring deposit. Here is a quick look at how the two forms of deposits function:

Fixed Deposit

Fixed deposits are financial instruments, provided by banks and non-banking financial companies, where entities can deposit a lump sum amount for a higher rate of interest (when compared with savings accounts). The minimum sum of money required to open a fixed deposit account differs from bank to bank. Similarly, the minimum and maximum tenure for which an FD can be held varies among banks also varies. Generally, one can invest in fixed deposit account for a minimum of 7 days and a maximum of 10 years.

The interest rate on fixed deposits will come down to the duration for which the account is to be held. Senior citizens are generally given higher interest rates, which is typically 0.50% greater than the rate offered to the general public. Also, senior citizens can claim tax benefits under Section 80TTB of the Income Tax Act for deposits held with banks, co-operative banks or Post Office. Here, a tax deduction of up to Rs. 50,000 can be claimed for any income by way of interest on deposits.

Below are some examples of fixed deposits offered by banks in the country:

ICICI Bank Fixed Deposit

Tenure range 7 days to 10 years
Partial withdrawal Allowed in units of Rs 1,000. The balance sum earns the original rate of interest.

Source: ICICI Bank website

Axis Bank Fixed Deposit

Tenure range 7 days to 10 years
Minimum investment Rs. 5,000 if booked through internet banking or mobile app Rs. 10,000 if booked via branch office

Source: Axis Bank website

Bajaj Finance Fixed Deposit

Tenure range 12 months to 60 months
Minimum deposit Rs. 25,000

Source: Bajaj Finance website

Recurring Deposit

A recurring deposit is a type of term deposit that enables individuals to park a fixed amount every month and earn interest at a rate similar to fixed deposits. A depositor typically makes small value remittances, like Rs. 10 (post office), Rs. 100, Rs. 500 or Rs. 1,000, on a month-on-month basis. Once the investment tenure ends, the principal amount and the interest earned shall be given to the accountholder. Unlike other market-linked instrument, an RD allows the depositor to get a pre-assured sum without any investment risk following the completion of the maturity period. It should be noted that since recurring deposits fall under the definition of time deposits, the interest received earned shall attract TDS.

One of the benefits of RD over FD is that the account holder can commit to investing a fixed sum every month, while an FD requires a lump sum payment to be made, which some may not be in a position to afford. The minimum period of investment for nearly all recurring deposits is 6 months, while the maximum permissible period is about 10 years. The rate of interest is directly correlated to the prime rate of the RBI. It gets compounded and credited to the account on a quarterly basis.

Below are some examples of recurring deposits offered by financial institutions in the country:

5-Year Post Office Recurring Deposit Account (RD)

Interest payable, Rates, Periodicity etc. From 01.07.2019, interest rates are as follows:
  • 7.2% per annum (quarterly compounded)
  • On maturity Rs. 10 account fetches Rs. 725.05. This can be continued for another 5 years, on year to year basis
  • Minimum Amount required to open account and maximum balance that can be retained Minimum Rs. 10 per month or any amount in multiples of Rs. 5. No maximum limit.

    Source: India Post website

    SBI Recurring Deposit

    Monthly deposits Minimum Rs.100 and in multiples of Rs. 10 No maximum.
    Investment tenure Minimum period 12 months maximum 120 months

    Source: SBI website

    iWish- Flexible Recurring Deposit

    Minimum deposit amount Rs. 500
    Interest rates 6.00% - 7.30%

    Source: ICICI Bank website

    How to Calculate Interest on Fixed Deposit?

    There are two methods by which banks and other financial institutions calculate interest on fixed deposits - simple interest and compound interest. Both may be used, depending on the tenure of investment and the sum that is deposited. The interest rate on Axis Bank FD for a tenure of less than 6 months is calculated at simple interest, along with the consideration of the number of days. Meanwhile, the interest earned on FDs with a tenure of 6 months and above, is compounded quarterly.

    In case of ICICI Bank, the interest on traditional fixed deposits with quarterly pay-outs is calculated based on annual rates (simple interest). For monthly pay-outs, interest gets paid at a discounted value. In case of traditional fixed deposits with quarterly pay-out, interest is assessed on the principal amount for completed quarters and then for the remaining period, interest is determined for completed months, and further for incomplete month on actual number of days.

    How to Calculate Interest on Recurring Deposit?

    Interest on recurring deposits is compounded on a quarterly basis. The formula that can be applied here is: A = P*(1+R/N)^(Nt). Here, A stands for the maturity amount, P is the recurring deposit amount, N is the compounding frequency, R is the interest rate in percentage and 't' is the tenure. The interest, for cumulative deposits held with ICICI Bank, is compounded quarterly on the completion of exact quarters. For the broken period beyond completed quarters, simple interest is calculated on the cumulated deposit for the remaining days.

    FAQs on Term Deposit Calculator

    How much amount can be deposited in fixed deposit?

    The minimum amount required to open an FD account will vary from bank to bank. It can be anywhere from a few hundreds to thousands of rupees. There is generally no upper limit on the amount that can be deposited in an FD.

    How do you figure out how much interest you will earn?

    The interest rate offered on fixed deposit will differ from one bank to another. Users looking to ascertain how much they will earn as interest from opening a fixed deposit can utilize the fixed deposit calculator. The calculator will show the approximate interest and the total amount that the depositor will receive at maturity.

    How much tax do you pay on term deposits?

    The interest income from bank term deposits is completely taxable under the Income Tax Act, 1961. This will get added to the taxpayer’s total income, and the entity will have to pay taxes on the basis of the applicable tax slab rates. If the interest income is below Rs. 40,000 during a year, the bank will not deduct any TDS. Before Budget 2019, the TDS limit on interest income was set at Rs. 10,000. It must be noted that if an entity is unable to provide PAN information to the bank, then 20% TDS will be deducted.