The formula used to calculate the interest depends on whether the interest is simple or compounded.
Simple Interest
For simple interest, the formula is:
Interest=P×R×T100\text{Interest} = \frac{P \times R \times T}{100}Interest=100P×R×T
Compound Interest
For compound interest, the interest can be calculated using the formula:
A=P(1+Rn×100)n×T\text{A} = P \left(1 + \frac{R}{n \times 100}ight)^{n \times T}A=P(1+n×100R)n×T
Where:
- A = Maturity amount (Principal + Interest)
- n = Number of times interest is compounded per year
The interest earned is then:
Interest=A−P\text{Interest} = A - PInterest=A−P
FD Calculator Example
Let's use an FD calculator to understand the process better. Suppose you have deposited ₹10,000 at an annual interest rate of 5% for 3 years. The bank compounds the interest annually.
Principal (P): ₹10,000
Rate of Interest (R): 5% per annum
Time (T): 3 years
Compounding Frequency (n): 1 (annually)
Using the FD calculator formula for compound interest:
A=10000(1+51×100)1×3A = 10000 \left(1 + \frac{5}{1 \times 100}ight)^{1 \times 3}A=10000(1+1×1005)1×3
A=10000(1+0.05)3A = 10000 \left(1 + 0.05ight)^3A=10000(1+0.05)3
A=10000×1.157625=₹11576.25A = 10000 \times 1.157625 = ₹11576.25A=10000×1.157625=₹11576.25
The interest earned would be:
Interest=A−P=11576.25−10000=₹1576.25\text{Interest} = A - P = 11576.25 - 10000 = ₹1576.25Interest=A−P=11576.25−10000=₹1576.25
So, the FD calculator helps us determine that the interest earned on the FD would be ₹1576.25 over 3 years with annual compounding.