1. What is the Fixed Deposit Formula?

The Fixed Deposit formula calculates the future value of an investment based on principal amount, interest rate, compounding frequency, and time period. It shows how money grows with compound interest over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( FV \) — Future Value of investment
• \( PV \) — Principal investment amount
• \( r \) — Annual interest rate (in decimal)
• \( n \) — Number of times interest is compounded per year
• \( t \) — Time period in years

Explanation: The formula accounts for compound interest, where interest is earned on both the principal and accumulated interest.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for financial planning. Even small differences in interest rates or compounding frequency can significantly impact returns over time.

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate as decimal (5% = 0.05), compounding frequency (e.g., 12 for monthly), and time in years (can use decimals for months).

5. Frequently Asked Questions (FAQ)

Q1: What are typical compounding frequencies?
A: Common frequencies are annually (1), semi-annually (2), quarterly (4), monthly (12), or daily (365).

Q2: How does compounding frequency affect returns?
A: More frequent compounding results in higher returns due to the "interest on interest" effect.

Q3: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest includes interest on previously earned interest.

Q4: Are FD rates fixed for entire tenure?
A: Typically yes, unless you choose a floating rate FD where rates may change with market conditions.

Q5: What's the benefit of longer FD tenures?
A: Longer tenures usually offer higher interest rates and more time for compounding to work.