Fixed Deposit Interest Rates:

The Reserve Bank of India
lends money to banks and other financial institutions to maintain liquidity.
The rate at which the central bank lends money to these financial institutions
is known as the repo rate. Banks borrow money from the central bank, and the
amount charged is known as the repo rate. In turn, banks offer loans to their
customers at an interest rate higher than the repo rate. This difference, known
as the interest rate spread, determines the cost of borrowing and the fixed
deposit interest rates offered by the bank.

The fixed deposit interest rates offered by financial institutions change with the
changes in the repo rate. When the repo rate falls, banks lower the interest
rates they pay on savings accounts and fixed deposits. In contrast, when the
repo rate increases, banks usually increase the interest rate paid on fixed
deposits to retain customers. Also, the tenure of the FD determines the
interest rate paid. The longer the deposit tenure, the higher the interest
rate. A premature withdrawal of the fixed deposit leads to a penalty, and the
investor does not receive the full interest.

FD Calculator:

Calculating the returns
from a fixed deposit is simple. The interest is calculated annually or
quarterly based on the deposit tenure and interest rate. For example, if an FD
of INR 1 lakh is made for one year at 6% per annum (p.a.), the interest earned
will be INR 6,000. The total amount payable on maturity will be INR 1,06,000.

However, calculating
manually for longer tenure deposits and varying interest rates may be
cumbersome. In such cases, individuals may use an FD calculator. The FD
calculator is a financial tool that helps an individual to determine the
returns from an FD. The user has to input the deposit amount, tenure, and
interest rate. The calculator then computes the interest earned and the amount
payable on maturity. The FD calculator also allows the user to compare the returns earned
from different financial institutions.

How to Apply for an FD:

Applying for an FD is a
simple process. The investor has to approach the financial institution of their
choice with all the required documents, such as identity proof, address proof,
and PAN card. The investor can choose the deposit tenure and the interest
payout option- monthly, quarterly, half-yearly, or annually. The interest
earned is subject to tax, as per the applicable tax rate. The financial
institution provides the investor with a fixed deposit receipt, which is also
known as the FD certificate. The FD certificate contains the deposit amount,
tenure, interest rate, and maturity date. The investor can use the certificate
to apply for a loan against the FD or for premature withdrawal.

Apart from bank fixed
deposits, individuals may also consider investing in corporate FDs. The returns
offered by corporate FDs are higher than bank FDs, but they also carry a higher
risk. Corporate FDs lack the guarantee of the Deposit Insurance and Credit
Guarantee Corporation (DICGC), which covers bank deposits up to INR 5 lakh per
customer per bank.

Conclusion:

Fixed Deposits remain a
popular investment option due to their stability and predictability. The fixed
deposit interest rates usually vary with the tenure and the prevailing repo
rate. An FD calculator can aid investors in comparing the returns offered by
different financial institutions. Individuals must gauge all the pros and cons
of trading in the Indian financial market before investing in an FD.