Fixed Deposit Alert: Fixed deposit is still one of the important investment options. But how does FD work? Read important information on this.
Fixed Deposit Alert: Fixed Deposit is a popular investment tool. It is perfect for those who are looking for a safe option to grow money. Investing in FD is easy and it gives better returns without any risk. Whereas most other investment options are affected by market fluctuations. In Fixed Deposit, investors have to deposit a lump sum amount for a fixed period, on which interest is received as per the pre-determined rate. In the end, investors are given the final amount by adding compound interest to the invested amount. Investors can also choose the option of monthly or quarterly interest payment in FD. Apart from this, you can also take a loan against it.
How does Fixed Deposit work?
Fixed Deposit gives more interest than Savings Account. In this, interest is paid based on the time of your deposit. The period of FD can be from 7 days to 10 years. Meanwhile, if you want, you can withdraw money from your FD account before time, but a penalty may be levied on it.
You can choose the period of FD as per your wish. On maturity, the account holder gets the principal amount as well as interest. It also provides people with a constant source of income in the form of interest, which they can either reinvest or reclaim.
Let’s understand this with an example
Suppose you want to invest Rs 2 lakh in FD. You have invested this amount in FD for one year in a bank at an annual interest rate of 7 percent. At the end of the year, you will get Rs 2 lakh as principal amount, while Rs 14,000 will be given as interest.
To calculate your FD returns, you can use this formula: A = P (1 + r/n)^(n*t), where A = maturity amount, P = principal amount, r = annual interest rate, n = number of compounding periods per year and t = tenure of the FD (in years).
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