• # Difference in FD maturity value calculation with bank

Facing an issue in calculation of maturity value of FD? confused between using year or months or days for calculation? Here, on this page our ISC experts shall provide you the correct formula to calculate the same.

When I used formula(=Principal Amount*((1+Annual Interest Rate/4)^(Total Years of Investment*4))) for calculating FD Maturity value on quarterly basis, there is difference as per in bank maturity value. It has happened only if I taken period of deposit in form of days or months. If I had taken the period in form of YEAR then the calculation is perfect.

Why this is happening when the formula for every form of period is same?

If total year of investment is for 5 year - I will take (5*4/1) - matching with bank maturity value
If total year of investment is for 60 Months - I will take (60*4/12) - NOT matching with bank maturity value
If total year of investment is for 1825 days - I will take (1825*4/365) - NOT matching with bank maturity value

• There are online financial tools which will calculate the maturity amount and give you the exact maturity value. It is called a Fixed Deposit Calculator. This calculator will ask you to give the inputs. They are nothing but the Fixed deposit amount, period of FD and interest rate. Once you give this information financial tool will give you the maturity value. Before investing you can calculate and see.

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• People generally go for cumulative FD deposits in banks in which the interested is ploughed back and the accumulated amount after the maturity period is paid to the customer. The FD interest in banks are generally calculated on quarterly rests. It means that every quarter the interest accrued will be added to the principle amount and then this will become the new principe for the next quarter. In some banks interest is calculated on half yearly or annual rests and that interest will be slightly less than that calculated on quarterly rest. So depending upon the interest period frequency chosen the maturity value will be different. So the frequency of payment of interest is an important factor in calculating the maturity value. If interest is paid on quarterly rests then frequency is 4, if it is paid six monthly frequency is 2 and if paid annually frequency is 1 only.

The formula for maturity value for a cumulative FD is given by -

A = P (1 + r/100n)^nt
Where A is maturity amount
'P' is principle amount
'r' is rate of interest
't' is the number of years
'n' is the frequency
'^' is the sign for raise to power

This formula is valid only when 't' is taken in years and not to be converted to days and months. For days and months separate formula is to be derived which I am not aware. That is the reason you are getting a mismatch.

Knowledge is power.

• The basic formulae for calculation of interest for a commutative fixed deposit on yearly basis is shown below- A =P( 1+r/ 100) ^t where A stands the total money ie principal money + interst earned during such period.
P = Principal money , r= Rate of interest per annum. and t = time in years.
Normally the banks offers interest yearly for the commutative fixed deposit, this formulae would hold valid for all such calculations.
However, if no of days are to be calculated, the same should be converted into year by dividing the no of days / 365
If calculated with the intereste calculator provided with the bank, your calculation and that of calculator would match nearly with a minor deviation because of involvement of decimals.
The units of each term should be followed religiously in order to arrive at the exact result.
In case of calculation for quarterly, half yearly, instead of taking r/ 100, it should be taken r/ 100n and the previous formulae is to be modified as
A =P( 1+ r/ 100n) ^nt where n stands for frequency for quarterly it would correspond to 4 but for half yearly this correspond to 2.

• Your FD interest is calculated on a half-yearly or quarterly compounding basis. First, you have to enquire about how your bank is calculating the interest. In general, you can check your interest with a general formula matured value= p*(1+i/n)^n*t where p is the principal amount," I" is the interest rate,n is the number of compounding in a year (for quarterly compounding n=4) and t is the duration of the investment.

Bank's interest are not simple interest it is compounding on a yearly, half-yearly or quarterly basis. You will get various online FD return calculators to calculate your return and compare with it your bank's data so that you can visualize whether the bank offers quarterly compounding or yearly compounding.

Banks FD may attract TDS deduction, so during calculation consider the TDS amount also as a return of investment so that you can figure out rightly.