Banks, post offices and Non-Banking Financial Companies (NBFCs) offer fixed deposits (FD) in India. Among the three, NBFCs or corporate companies offer higher interest rates on their fixed deposit schemes to attract customers. For instance, Shriram Fixed Deposit offers interest of up to 9.40%* p.a. inclusive of an 0.50%* p.a. for senior citizens and 0.10%* p.a. for women depositors.
However, corporate companies like Shriram Finance calculate their FD interest rates based on various factors. Let's have a look at these factors and understand how to calculate interest for FD schemes.
Factors Affecting Corporate FD Interest Rates
The corporate FD rates depend on the following factors:
Type of FD
Many corporate companies offer two types of deposit schemes, and the interest rates are different for each of these schemes.
- Cumulative FD - A cumulative FD is one where the interest you earn every year is reinvested in the scheme. This allows you to earn additional interest on the interest already earned. On maturity, the aggregate interest and the deposited amount is paid back in a lump sum.
- Non-cumulative FD - Under this scheme, the interest you earn is paid instead of getting reinvested. Thus, you can create a regular source of income with non-cumulative FDs and get the deposit amount back on maturity.
Deposit tenure
The interest rate also depends on the deposit tenure. Usually, as the deposit tenure increases, so does the interest rate.
Age of the depositor
Senior citizens, i.e., individuals aged 60 years and above, enjoy higher interest rates on their deposits. So, if you are a senior citizen or you open an FD for your senior citizen parents, you can earn higher interest rates.
Gender of the depositor
Many corporate companies allow higher interest rates for women depositors. For instance, Shriram Fixed Deposit offers its female depositors a 0.10% additional interest benefit with interest rate running up to 9.40%* p.a.
Renewing an existing deposit
If you renew the FD on maturity, you might earn an additional interest rate on such renewals. Many corporate companies like Shriram Finance offer additional interest rates on renewing the FD scheme post-maturity. Depositors can avail an additional 0.25%* p.a. upon maturity of their fixed deposit.
So, when you choose a corporate FD, these factors determine the interest your deposit will attract.
Interest Calculation Formula for Corporate Fixed Deposits
Now that you know the factors that affect your corporate fixed deposit interest rates, let's understand how to calculate FD interest.
You can calculate the interest with an FD calculation formula.
Also, in the case of compound interest, the frequency of compounding is considered.
Here's a look at the interest calculation formula for corporate fixed deposits:
- Simple interest
Simple interest is usually calculated in the case of non-cumulative deposits which pay the interest as and when it is earned. The FD calculation formula, in this case, is as follows:
Interest earned = (P X R X T) / 100
In the formula, the values are as follows:
- P - The amount that you deposit
- R - The rate of interest, expressed as a percentage
- T - Tenure, expressed in years
For example, say you deposit ₹1 lakh in a non-cumulative FD scheme where the interest rate is 7%, and the deposit tenure is 2 years. Here's how the interest will be calculated and paid:
| Period | Interest calculated and paid annually | Interest calculated and paid half-yearly |
|---|---|---|
| After 6 months | (₹1 lakh X 7% X 1 year) / 100 = ₹7,000 | ₹1 lakh X 7% X 0.5 years) / 100 = ₹3,500 |
| After 18 months | NA | ₹1 lakhs X 7% X 0.5 years) / 100 = ₹3,500 |
| After 24 months | (₹1 lakhs X 7% X 1 year) / 100 = ₹7,000 | ₹ 1 lakh X 7% X 0.5 years) / 100 = ₹3,500 |
In non-cumulative fixed deposit, the interest rate differs depending on the payout period. To get accurate interest rates of Shriram Unnati Fixed Deposit, use our FD calculator.
- Compound interest
This interest is applicable in cumulative FDs. In the case of compound interest, the interest earned is reinvested, and future interest is earned on the same.
For instance, consider the following example:
| Period | Deposit amount | Interest rate | Interest earned | Total deposit value |
|---|---|---|---|---|
| After the end of 1 year | ₹1 lakh | 7% | ₹7,000 | ₹1,07,000 |
| After the end of the 2nd year | ₹1,07,000 | 7% | ₹7,490 | ₹1,14,490 |
To make calculations easier, you can use the compound interest formula for calculating the FD amount on maturity. The formula is:
Maturity amount = P X {(1 + R/N) ^ T X N}
In the formula, the values are:
- P - The amount that you deposit
- R - The rate of interest, expressed in decimals
- T - Tenure, expressed in years
- N - The compounding frequency, i.e., whether the interest is compounded annually, half-yearly or quarterly
If you deduct the deposited amount from the maturity amount, you will get the interest earned.
To understand the compound interest calculation using the formula, consider the following examples:
| Cases | Deposit details | Interest rate | Compounding frequency | Maturity amount | Interest earned |
|---|---|---|---|---|---|
| Case 1 | ₹1 lakh deposited for 4 years | 7% per annum | Annual | P X {(1 + R/N) ^ T X N} = ₹1 lakh X {(1 + 0.07/1) ^ 4 X 1} = ₹1,31,080 | ₹1,31,080 - ₹1,00,000 = ₹31,080 |
| Case 2 | ₹1 lakh deposited for 4 years | 7% per annum | Half-yearly (compounding frequency is 2) | P X {(1 + R/N) ^ T X N} = Rs.1 lakh X {(1 + 0.07/2) ^ 4 X 2} = ₹1,31,681 | ₹1,31,681 - ₹1,00,000 = ₹31,681 |
| Case 3 | ₹1 lakh deposited for 4 years | 7% per annum | Quarterly (compounding frequency is 4) | P X {(1 + R/N) ^ T X N} = ₹1 lakh X {(1 + 0.07/4) ^ 4 X 4} = ₹1,31,993 | ₹.1,31,993 - ₹1,00,000 = ₹31,993 |
Investors can earn attractive returns upon investing in cumulative deposit. Earn higher returns by investing in cumulative fixed deposit from Shriram Finance.
Using the Fixed Deposit Calculator for Interest Calculation
While these mathematical formulae can help you calculate the corporate FD interest, you can simplify the job with an FD calculator.
An FD calculator is an online tool that helps you calculate the interest that you can earn on your fixed deposits. The calculator uses the FD calculation formula to generate the interest and the maturity amount.
To use the calculator, simply input the following details:
- Deposit amount
- Tenure
- Type of scheme - regular or senior citizen
- Type of FD - cumulative or non-cumulative
Based on these factors, the calculator will instantly display the interest and maturity amount without errors.
Using the Shriram Fixed Deposit Calculator allows you to calculate the interest and the maturity amount under both cumulative and non-cumulative schemes. You can enter the FD details and get instant results.
The Bottom Line
Corporate companies can offer attractive interest rates on your FDs. Know how to calculate fixed deposit interest with the interest calculation formula to know the expected earnings from the investment
Compare different corporate FD schemes and choose one that offers the highest rates for maximum returns, like Shriram Fixed Deposits offer interest rates as high as up 9.40%* p.a.
Invest now in Shriram Fixed Deposits and watch your corpus grow steadily, giving guaranteed returns.
Key Highlights
- Corporate FD schemes offer higher interest rates compared to banks and post offices.
- The interest rate depends on several factors. These include the type of FD, tenure, age and gender of the depositor.
- FD interest can be calculated on a simple or compound interest basis. The formulae are different for both bases.
- You can use an online FD calculator to calculate the interest instantly without doing the calculations yourself.
FAQs
1) What is the maximum tenure under corporate FDs?
The maximum tenure varies across NBFCs. Most corporate companies, like Shriram Finance, offer tenures of up to 5 years, whereas with respect to other financial institutions the term can go up to 10 years.
2) Is the FD interest calculator free of cost?
Yes, the FD interest calculator is completely free of cost.
3) Is the FD interest taxable?
Yes, the interest earned from corporate FDs is taxable. The interest is taxed in your hands at your tax slab.
