SFBs Compete for Term Deposits as Interest Rates Fall

Banks across the country are flushed with currency since demonetization of two of the most popular currency notes – Rs.500 and Rs.1000 was announced by Prime Minister Narendra Modi on November 8, 2016. In lieu of this move, interest rates across deposits and banks have been falling ever since and SFBs or Small Finance Banks are competing with each other to offer the best possible rates on the table.

How are SFBs capitalizing on interest rates post demonetization?

The main reason for slashing the interest rates of deposits have been to keep in check with the offtake of slow credit as the aftermath of demonetization. Customers of SFBs are now being offered interest rates that are up to 200 bps or basis points higher than the current market rates. Take for instance, Suryoday Micro Finance – the bank is offering its term deposits at an interest rate of up to 9% p.a. depending on the tenure and senior citizens will receive an additional interest rate of 0.75% p.a. Even their savings accounts are being offered at an interest rate of 6.25% p.a. for up to Rs.1 lakh and for deposits between Rs.1 lakh and Rs.10 lakhs, an interest rate of 7.25% p.a. is being offered.

Utkarsh is another SFB that is offering their term deposits with interest rates of up to 8.5% p.a. and an additional interest rate of 0.50% p.a. for senior citizens. Utkarsh is also set to open 50 new bank branches over the span of 2 months and upgrade its present MFI or Micro-Finance Institutions into full-fledged banks this April, as communicated by the bank’s managing director, Govind Singh.

Ujjivan is another SFB that is prepared to offer interest rates on deposits that are higher than the prevailing market rates. Ujjivan’s focus so far has been only on wholesale deposits, but it is also preparing itself to raise interest rates for its retail deposits in the near future.

Equitas is offering interest rates up to 9% p.a. on their term deposits and between 6% p.a. and 7.5% p.a. on their savings account.

Capital Small Finance Bank is offering 4% p.a. interest rate on their savings account and 7% p.a. on their term deposits for a tenure between 5 years and 10 years. For senior citizens, the bank is offering an interest rate of 7.2% for a tenure of 400 days.

What does the future look like for SFBs?

The cost of funds for a majority of these Small Finance Banks have been 11% or more. However, as many SFBs are gearing themselves to convert their existing businesses into banks, their cost of funds will most definitely come down even if they are offering interest rates higher than the prevailing market rates.

However, most of the SFBs are said to initially focus on micro lending before transitioning into full-fledged retail banking. Due to this focus, most of the SFBs are proposing to keep their MCLR or Marginal Cost of Funds based Lending rate high.

According to the norms put forth by the RBI (Reserve Bank of India), SFBs have to start their operations latest by this April. RBI granted licenses to 10 SFBs in September 2015 and recently, 11 companies have been permitted to start payment banks.

Why Liquid Funds are a Good Idea

With the demonetisation drive that took the country by storm, liquidity has seen a tremendous increase and while the drive did stir up the pot, it managed to bring a lot of the currency back into the banks. The demonetized currency has almost entirely (close to 95%) been deposited back into the accounts and the overall financial ecosystem is currently seeing a great degree of liquidity.

This feature has consequences that reach farther than the lines at the ATM. Banks are now flush with cash which has caused them to reduce interest rates. Borrowers with car loans or home loans can enjoy this brief respite but investors’ better start looking at other options rather than traditional fixed deposits. Lowered interest rates also imply that the bank pays lower rates for deposit amounts thus reducing the returns.

The reduction in rates are meant to deter people from further depositing cash into the system. Investors can still opt for time tested methods of deposits that are extremely safe but give poor yields. Other options investors could consider are Liquid Funds.

Features of Liquid Funds

Liquid funds are money market funds that fall under the debt fund category. These funds give better returns than bank deposits and consist of investments such as short-term treasury bills, commercial papers, term deposits and certificate of deposits. The maturity period of assets invested in have an average period of 91 days

Liquid funds are offered by a wide range of fund houses. Entry or Exit loads are not imposed on these funds. Unlike equity funds, the management fees levied on liquid funds are lower as well ranging between 0.5% and 1%. Even the investment amounts are very affordable for those just starting off. Investments can be made through lump sums or through SIPs used in a manner similar to mutual funds. Lump sums invested in liquid funds can be as low as Rs.5,000.

Tax benefits

This is the realm in which liquid funds are far superior. Bank deposits usually offer lower interest rates but come with no risk. The interest rates on deposits can range from 4% to 7% and when you take tax deductions into account, the returns are further diminished. For those investors falling under the 30% tax bracket and holding a fixed deposit that offers an interest rate of 6.5% per annum, the interest rates received after tax deduction will wilt down to 4.55%

Liquid funds on an average have been earning more than bank deposits with interest rates averaging out at 8% to 9% per annum. This trend has been consistent over the past few years and even with a slump in interest rates of liquid funds as was witnessed last year, the funds still earned a rate of 7.5% which is comparatively higher than rates offered on bank deposits.

Another tax benefit of liquid funds is that the tax paid on annual interest rates does not occur annually as is the case with bank deposits. The tax is paid only when the fund is liquidated. Tax paid on returns is of two types. One is short-term capital gain tax which is levied on redemption of debt funds in less than 3 years or less than one year for equities. The second is long-term capital gain tax which is levied on redemptions made on debt funds after a period of three years.

How to invest in corporate fixed deposits efficiently?

Do you want to earn higher returns on your investments? You can switch from bank deposits to corporate fixed deposits and enjoy amazing returns! If you are not aware of how to invest in corporate fixed deposits, this article is the right choice for you. You can learn how to make a corporate fixed deposit without stressing about the risks associated with it.

Corporate fixed deposits tend to yield higher returns as they are not very well reputed when compared to bank deposits. When we focus only on the returns, we do not care about the risks. When we concentrate only on the risks, we are forced to go for something lesser. To tackle both these aspects, we can choose something in between and they are debt mutual funds.

You need to understand that corporate fixed deposits are highly risky even if the fund is rated well. The returns for these funds may be high or not. It depends on the market. When the rating of a particular fund goes down, there will be a delay in interest payments. Sometimes, the company may also fail to make your interest payment.

Debt mutual funds are better as they distribute this risk across different corporate fixed deposits and other forms of bonds. So, when you go for a debt mutual fund, you do not have to worry about heavy risks.

Meaning of debt mutual funds

A debt mutual fund is a blend of investments in which fixed investments are the primary holdings. A debt fund can deposit in short-term bonds, floating rate debt or long-term bonds, or money market instruments.

Types of debt mutual funds

Let us now take a look at some of the debt mutual funds:

• Closed-ended debt funds: These funds are also known as fixed maturity plans. These funds put money in debt securities like commercial papers, government bonds, treasury bills, corporate bonds, and certificates of deposit. A fixed maturity plan is generally given for 3 years and so the bond will correspond this period. If the rating of a particular bond goes down, you cannot sell it in a hurry because the debt fund is closed. So, panic selling will be avoided. The problem with this fund is that it is locked up until it gets matured. You will not be able to invest on a monthly basis with this type of fund.
• Open-ended income funds: An open-ended fund is a fund that allows an investor to subscribe or repurchase on a regular basis. The maturity period for these funds is not fixed. An investor can achieve both income and growth with this type of fund by buying a varied portfolio. This kind of fund will permit you to invest every month and rebalance according to your specific preferences. When a certain bond’s rating falls, the NAV will also drop. This may make you get restless and so you may start to redeem frantically. Therefore, if one bond does not work, the AMC may sell it even if it does not make any profits.
• Semi-closed-ended debt funds: These funds are also known as interval funds. These funds are generally closed for a certain period during which you cannot subscribe or redeem your plan. It will be opened for about two days during which you can redeem and invest additional amounts. These particular two days are together known as specified transaction period.

Debt mutual funds are very stable as opposed to equity investments. These debt funds will not be affected by the changing conditions of the equity market. You can also make your entire investment portfolio stable by investing in debt mutual funds. Hence, depositing money in debt mutual funds is a very good financial idea.

Fixed Deposit Double Scheme Yojana

Are you interested in saving money? You can achieve this financial goal by investing your money in the Fixed Deposit Double Scheme Yojana. The Fixed Deposit Double Scheme Yojana brought to you by the Government of India allows you to double your money in an efficient manner. There are many investment options available in the market that promise to double your funds. However, most of these options may not be genuine. When you go for the Fixed Deposit Double Scheme, you can be assured that your money will get doubled without having to worry about any risks or losses.

Meaning of Fixed Deposit Double Scheme

A Fixed Deposit Double Scheme that enables customers to double their funds within a certain period. This scheme is available in very few banks in India. According to the terms of this financial scheme, you will need to deposit a particular sum of money for a certain period which will be fixed. This money will yield some interest and this particular interest will help in doubling your money. You will receive the doubled money after the term of your deposit expires.

Features and benefits of a Fixed Deposit Double Scheme

Let us now take a look at the common features and advantages of a Fixed Deposit Double Scheme:

• Quick and simple to open: You can open a Fixed Deposit Double Scheme in your account quickly without much trouble. The documentation for this deposit scheme is simple.
• Minimum amount requirement: There is a minimum amount requirement for investing in the Fixed Deposit Double Scheme Yojana. The minimum amount will be different for each bank.
• Different interest for customers: Each category of customers such as senior citizens, etc. will have different interest rates. These interest rates will help in doubling the funds of the customers.
• Early withdrawal of money: With this type of scheme, you can withdraw money from your account before the due date. This scheme is flexible in nature. When you have medical or personal emergencies, you can withdraw from your account without any worries.
• Nomination: Individuals who have deposited in Fixed Deposit Double Scheme can nominate others in case of emergencies or demise.
• TDS benefits: You will be entitled to tax benefits under this scheme. When you gain interests from this deposit, you can enjoy TDS deductions.
• Loans: With a Fixed Deposit Double Scheme, you can apply for loans from your bank. With this, you do not have to worry about lengthy documentation processes.

Banks that give Fixed Deposit Double Scheme in India

These are some of the top banks that offer Fixed Deposit Double Scheme:

• Bank of Baroda: This bank has a scheme known as ‘Baroda Double Dhamaka Fixed Deposit.’ It assures to double the deposit money of investors. You can deposit any amount ranging from Rs.5,000 to Rs.1 crore. For senior citizens, the duration for the deposit to double is 105 months and 3 days. For others, it is 112 months.
• Tamilnad Mercantile Bank: This bank offers a ‘Double Deposit Scheme’ to both individuals and companies. The doubling period for senior citizens is 98 months and 10 days. The doubling period for others is 104 months and 11 days. The minimum amount to be deposited is Rs.1,000.
• Oriental Bank of Commerce: This bank has ‘The Oriental Double Deposit Scheme’. The minimum amount for this scheme is Rs.1,000. For senior citizens, the money will double in 105 months, for staff members, the money will double in 99 months, for the general public, the money will double in 114 months, and for former staff, the money will double in 96 months.
• Allahabad Bank: This bank offers the ‘Double Deposit Plan’. In this deposit plan, the funds do not get doubled as such. However, you will receive compounded interest on a quarterly basis on your deposit. This will give you better returns. The minimum amount to be deposited is Rs.1,000.
• Punjab National Bank: This bank offers the ‘Dugana Fixed Deposit Scheme’ which doubles your funds. You will have to deposit a minimum of Rs.5,000 to enjoy the benefits of this financial plan. Your funds will get doubled within 99 months.

You need to keep in mind that the tenure for your double deposit scheme will be determined by the bank and not by you. You can choose a Fixed Deposit Double Scheme if it suits your financial goals. It is flexible and simple in nature.

Small Finance Banks Compete for Term Deposits as Interest Rates Fall

Banks across the country are flushed with currency since demonetization of two of the most popular currency notes – Rs.500 and Rs.1000 was announced by Prime Minister Narendra Modi on November 8, 2016. In lieu of this move, interest rates across deposits and banks have been falling ever since and SFBs or Small Finance Banks are competing with each other to offer the best possible rates on the table.

How are SFBs capitalizing on interest rates post demonetization?

The main reason for slashing the interest rates off deposits have been to keep in check with the offtake of slow credit as the aftermath of demonetization. Customers of SFBs are now being offered interest rates that are up to 200 bps or basis points higher than the current market rates. Take for instance, Suryoday Micro Finance – the bank is offering its termdeposits at an interest rate of up to 9% p.a. depending on the tenure and senior citizens will receive an additional interest rate of 0.75% p.a. Even their savings accounts are being offered at an interest rate of 6.25% p.a. for up to Rs.1 lakh and for deposits between Rs.1 lakh and Rs.10 lakhs, an interest rate of 7.25% p.a. is being offered.

Utkarsh is another SFB that is offering their term deposits with interest rates of up to 8.5% p.a. and an additional interest rate of 0.50% p.a. for senior citizens. Utkarsh is also set to open 50 new bank branches over the span of 2 months and upgrade its present MFI or Micro-Finance Institutions into full-fledged banks this April, as communicated by the bank’s managing director, Govind Singh.

Ujjivan is another SFB that is prepared to offer interest rates on deposits that are higher than the prevailing market rates. Ujjivan’s focus so far has been only on wholesale deposits, but it is also preparing itself to raise interest rates for its retail deposits in the near future.

Equitas is offering interest rates up to 9% p.a. on their term deposits and between 6% p.a. and 7.5% p.a. on their savings account.

Capital Small Finance Bank is offering 4% p.a. interest rate on their savings account and 7% p.a. on their term deposits for a tenure between 5 years and 10 years. For senior citizens, the bank is offering an interest rate of 7.2% for a tenure of 400 days.

What does the future look like for SFBs?

The cost of funds for a majority of these Small Finance Banks have been 11% or more. However, as many SFBs are gearing themselves to convert their existing businesses into banks, their cost of funds will most definitely come down even if they are offering interest rates higher than the prevailing market rates.

However, most of the SFBs are said to initially focus on micro lending before transitioning into full-fledged retail banking. Due to this focus, most of the SFBs are proposing to keep their MCLR or Marginal Cost of Funds based Lending rate high.

According to the norms put forth by the RBI (Reserve Bank of India), SFBs have to start their operations latest by this April. RBI granted licenses to 10 SFBs in September 2015 and recently, 11 companies have been permitted to start payment banks.

Term deposits are a safe investment avenue for savers

   

It is advisable to put your hard earned money in different investment schemes to not only save for future use but also to earn better returns. Term deposits have proven to be a safe and good investment avenue for retirees, investors, and savers. Term deposit schemes are devoid of risks associated with market volatility. Its rates change on a regular basis. Deposit rates are calculated depending on the tenure of a fixed deposit. A fixed deposit tenure can be anywhere from a month to 10 years.

Types of term deposit schemes

A term deposit scheme is classified as short-term or long-term based on the tenure. The 2 types of term deposit schemes are:

• Short-term deposits: A short-term deposit scheme can have a tenure anywhere from 1 month to 1 year. Short-term deposit schemes are for those who have short-term savings goals. If you choose a short-term deposit scheme, ensure there is an option to renew your deposit after the end of the tenure. Short-term deposit schemes have lower interest rates compared to long-term deposit schemes.
• Long-term deposits: The tenure for a long-term deposit ranges from 1 year to 10 years. Choose a long-term deposit scheme with a competitive interest rate. Long-term deposit schemes with monthly interest earnings will offer lower interest rates compared to quarterly or yearly earnings. You should also look out for advance notice period for premature withdrawal of your deposit. If an advance notice period is required for the premature withdrawal of your deposit, then it may not serve your urgent financial need.

Features of a fixed deposit scheme

A fixed deposit account is a savings account in which you can deposit a principal amount once and earn interest on the deposited amount for a fixed tenure.

• You can deposit money only once in a fixed deposit account, unlike a savings account. To make another deposit you will have to open a separate FD account.
• The interest earned on a fixed deposit amount can be transferred to your savings account on a quarterly or monthly basis. This is not applicable for reinvestment schemes.
• You can renew the deposit for another fixed period after the end of the first tenure.
• Encashment of your FD can be done only at maturity. You will have to pay a penalty fee for partial or premature withdrawal of deposit.
• The interest earned on your fixed deposit amount is subjected to tax deduction at the source.

Fixed deposits are preferable to savings accounts as the FD interest rate is higher for FDs.

Advantages of having a fixed deposit account

In addition to saving money, listed below are other benefits of owning a fixed deposit account:

• A fixed deposit can be used for tax benefits under Section 80C of the Income Tax Act.
• You can also use your FD account as collateral to obtain loans or overdraft.
• Some banks offer higher interest rates on FD to customers above 60 years of age. You can open a joint account with a senior citizen to get a slightly higher interest rate on your FD.
• A FD can be used to improve your credit score.
• You can obtain secured credit cards using your FD.

Deposit rate cuts post demonetisation

Before investing in a term deposit scheme, compare the deposit rates across banks and choose the one with the highest rate to earn better interest on your savings. Indian banks were offering up to 9% interest rate on FDs. However, following the demonetisation of Rs.500 and Rs.1,000 currency notes last November, banks are now flush with cash. The drastic increase in cash inflow has brought down the cost of funds. Therefore, many national banks have reduced their deposit rates. Currently, Ratnakar Bank is offering the highest interest rate on FDs with tenure ranging from less than 1 year to more than 10 years at 7.50-7.70% p.a.

Can debt mutual funds be the perfect alternative to fixed deposits and Term Deposits?

Equity mutual funds can definitely prove to be a suitable option for several people with long term investment plans. However, there can be situations when the equity is not very suitable. The reasons are as follow:

The goals that you set are only five years away.

• You are not comfy with volatility and you are also ready to adjust the expectations of growth accordingly.
• The objectives of growth will be met with a return rate of 8 % to 9 %.

In case you are in such a position, you have two options to choose from. Debt Funds and Bank Fixed Deposits and TermDeposits. Let us compare them on different grounds.

• The security of your capital is pretty much the same – In order to know if your money is safe or not, you must take a look at the credit rating of this instrument. This is provided by the independent agencies for credit rating using the scale below.

Rate	Issuers	Meaning
Sovereign	Indian Government	Absolutely safe
AAA	Public sector undertakings, most banks, stable big companies	Very safe (high degree of safety)
AA	Private organizations	Considerably high safety
BBB	Private organizations	Below average
BB, B, C or Lower	Private organizations	Poor

Mostly fixed deposits and term deposits are extremely safe and they are rated as AAA. In other words, there is no chance that you will lose the money that you invested. It is often assumed that the government guarantees fixed deposits. It is true that the government guarantees fixed deposits but only till an amount of Rs 1 lakh. Above that, the bank’s credit rating plays a major role. The selection of the bank is also vital. The debt funds do not come with ratings. However, the safety with debt funds can be deduced. It typically lies between Sovereign and AA. If you choose carefully, you might be able to select a debt fund that comes with a combined credit risk similar to fixed deposits.

• The rate of interest gets locked when you invest in fixed deposit. At present that rate is 8 % to 9 %. This is applicable for a tenure that is above one year. You will be able to fd calculator the exact amount that you will get when the deposit matures. The debt funds offer 8 % to 9 % returns too. However, there is no guarantee about the returns. Debts funds are definitely safe but there can be situations when there is volatility due to interest rate fluctuations.
• The income that you get from debt funds and fixed deposits are categorized differently. Debt funds offer dividend or capital appreciation. The interest amount that you get from the bank fixed deposits are taxable. On the other hand there is hardly any tax deduction on the debt funds after a period of three years. The tax that you pay on your debt funds within the 1 to 3 year time frame is pretty low. Up to the end of the first year, the tax impact for debt funds and fixed deposits are same. Every year, taxes must be paid for the interest earned of FDs. Thus, the amount of money that accumulates becomes lesser.
• In case you need money before your fixed deposit matures, you will be getting lesser interest than you should. Along with it, you will also have to pay penalty charges for withdrawing the amount before maturity. Some of the banks might allow you to withdraw from your FD in part. However, most banks would ask you to take the entire amount when you wish to break the FD. For example, if you have Rs 2 lakhs in your fixed deposit account and you wish to take only Rs 40,000 from it, you might not be allowed to do it. You will be asked to withdraw the entire deposit of Rs 2 lakhs. On the other hand, debt funds offer you full liquidity for the investments you make. Any amount can be withdrawn from the debt fund value as per your needs. The money will be transferred to your bank account within a period of 3 to 4 days. The return that you receive is the money earned by your debt fund over the investment period. No complex formula is associated with it.
• Since the FDs are taxable, records must be maintained about your investments. You must compute the income that you will earn from the interest and then file the taxes for it. Things get complicated further when you withdraw money before your FD matures. In case of debt funds, the only tax that you have to pay is on capital gains when you withdraw. This means, you might pay for the taxes only once in five years.

3 Important Tips To Earn The Most Out Of Your Fixed Deposit Investment

The world economy is currently undergoing a bit of a slump. While it has marginally come out from the 2008 stock market disaster, there hasn’t been a full recovery. As such cases are never too far from happening, a vast majority of of investors are taking conservative decisions particularly when it comes to safeguarding their hard-earned money.

In this article, you will find some of the most important tips if you want to earn the most out of your fixeddeposits.

1. Research All The Way

Fixed deposits are traditionally the safest investment option when compared to mutual funds or stock as the returns you get aren’t linked to the economic conditions. Ideally, an FD would get you returns of about 6% - 9% on your investment.

In order, for you to get the most money out of your fixed deposit you will need to do your due diligence to find the best offers. One way to do this would be to get in touch with a handful of top banks or NBFCs and get a quotation of the rates they offer. Once you have all the offers in hand, you can select a deal that gives you the best interest rate.

2. Split Your Fixed Deposits/Term Deposits

If the interest on your fixed deposits/Term Deposits earn more than Rs. 10,000 a year, they will be eligible for a Tax Deduction at Source (TDS), which can be up to 10%. In order for you to make sure the deduction doesn’t happen, you can split your deposits such that the total interest earned would not be more than Rs. 10,000 a year.

Doing so can also be advantageous for you because you wouldn’t have to withdraw your entire FD if and when a cash crunch arises. Instead, you can break one or two while others will keep getting you the predetermined interest like it used to.

However, an important aspect worth noting is that you will need to mention the FD earnings when you file your tax returns, unless you want the IT department to come knocking on your door for tax evasion.

3. Refrain From Making Regular Interest Withdrawals

Every FD you apply for provides you with a number of options: one, withdraw the interest every month or quarterly or let it rest and gain more interest. When such instances occur, choose the latter. This is because when you withdrawing the interests regularly, you will not get the benefit of your FD’s interest compounding.To tackle this situation, you can reinvest the earnings to let it earn much better returns.

Advantages of a Fixed Deposit Account

Many times you may have heard people advising you to invest your money in a FD account. So what is FD? Fixed Deposit or FD is a type of term deposit that gives you a fixed Deposit rate of interest until maturity. By investing in FDs you can save and earn money at the same time. It also offers a higher rate of interest compared to a regular savings account. Apart from this, there are other advantages of having a FD account.

Mentioned below are a few advantages of having a FD account:

• Assured Return – If you invest your money in a fixed deposit account, you are assured a return. You will earn interest on your deposited amount, but the rate of interest depends on the tenure you have chosen. Banks in India are offering around 7% to 8% interest on Fixed Deposits at present.
• Flexible Payment – FDs allow you to choose how you wish to receive interest. You can choose to be paid annually, monthly or during maturity.
• Flexible Tenures – Fixed Deposits have flexible tenures. You can open a FD account for as less as 7 days. The tenure options are not the same for every bank. Also, it is not mandatory for you to have an account with a particular bank to open a FD account with it.
• Helps during Emergency – During emergencies when you are in need of money, a FD can help you a lot. Many banks offer loans against Fixed Deposits. Up to 90% of the deposit can be availed as loan. Some banks allow partial withdrawals of FDs as well.
• Risk Management – Financial instruments such as mutual funds, gold, etc., may provide high returns, but are also very risky. To adjust this market risk, it becomes important to invest in debt instruments. FDs will help you manage this risk as the returns are fixed.
• Easy to Withdraw – You can withdraw the amount you have deposited in your FD account at any time. For premature withdrawals, banks may charge you a small penalty.
• Saving Habit – Fixed Deposits help people in developing a habit of saving money. When you invest a certain amount in FD, that amount cannot be used until you withdraw it or maturity.

These are some of the benefits of investing in fixed deposits. You can open a FD at any time and the application process is also very simple. Just make sure that you select the right tenure.

The Formula for Compound Interest Rate

Compound interest is the concept of earning higher interest rate. If you have an account that earns compound interest this means that the bank pays you interest on your principal sum of money, plus on the interest your account has already earned. This means that your interest earns you even more money as interest.

A compound interest account can gain you a lot more money than may expect when calculating with a simple interest rate. But to find out exactly how much more, you need to use a compound interest formula.

What is a Compound Interest Formula

A compound interest formula is the mathematical calculation of how your interest earnings would add to to give you the final sum total. It is a very important tool to track your current finances and plan your future investments. If you are contemplating the steps to a future financial venture such as getting a house or a car, the formula for compound interest rate will help you understand exactly how much you stand to gain through your bank account and you can then estimate how much of loan payment you can afford.

How do I calculate the compound interest formula?

FD Calculator

The formula for calculating compound interest is:

A = P (1 + r/n) (nt)

where

A = The money (including interest) you will accumulate after ‘n’ number of years. This is also the answer to the compound interest formula and calculates the future value your investment or loan.

P = The principal amount of money you invested initially.

r = The annual rate of interest. This information is to be entered as a decimal into the formula.

n = The number of times interest is compounded per year, or the number of times the interest is paid to your account.

t = The number of years the money has been invested for.

If you have the correct information for all the values in the formula, you will get the correct amount of money you will earn with this investment.

If you want to calculate only the compound interest you earn and not the entire amount (principal plus interest), you need to tweak the formula to subtract the initial principal amount you invested. Then the formula you are looking for becomes as below:

Total compounded interest = P (1 + r/n) (nt) – P

All the variables in this formula remains the same as in the original formula. And you get the sum of money you will have earned in the future.

The Benefits of Using the Compound Interest Formula

Besides the obvious benefit of learning how much interest you earn in future, compound interest calculation formula helps you make an investment in the first place.

For example, if you want to purchase a house sometime in the future, the compound interest rate formula will show you exactly how much money you need to invest, for how long, and at what interest rate in order to buy your dream house.

• The formula for compound interest shows that your earnings grow exponentially over time. The longer duration you invest your money for, the greater your overall earnings will be. You can use this compound interest formula to judge what your period of investment should be to earn a desired sum of money.
• Compound interest formula shows you exactly how large of an initial payment you need to make. A higher ‘P’ or initial investment will also lead to a greater income.
• The same exponential rule applies to the interest rate. As with all savings, the higher the interest rate, the more money you earn as interest.

Thus we see that by using the formula, you never have to step blindly into an investment.

The ‘Quarterly’ Compound Interest Formula

We often have the need to calculate the compound interest we get in quarterly measure, as most banks pay interest to your account on a quarterly basis. We can tweak the compound interest formula to our benefit in this case.

The compound interest formula is made up of different pieces, each representing a different component. We have the component ‘n’ which is the number of times interest is compounded within a financial the year. So if your interest is compounded quarterly, then the value of ‘n’ in the compound interest formula will be 4. Thus, there is no need to formulate a different formula for quarterly compound interest calculation.

By changing the value of ‘n’ you can use the compound interest formula to determine quarterly, bi-annually, monthly and yearly compound interest. Thus, this compound interest formula can help you calculate interest on any type of compound interest account you plan to open.

Compound Interest Formula is a Friend

Most mathematical equations looks intimidating, the compound interest formula is no exception. But you have all the correct details it is not difficult at all to use this formula to your advantage.

Using this formula, you will also be to compare the amount you would earn in a standard account to that in a compound interest account. The compound interest rate formula will let you see how the difference between how much the two accounts will earn for you.

Compound interest formula is a friend which is here to help you score up your earnings.

Secured credit card for building credit

There is a very old saying that goes “It takes money to make money.” This means that you need credit for building credit. You must learn responsible credit management if you wish to rebuild your bad credit or have zero credit history so far. Using secured credit cards for building credit can definitely prove to be the right decision for you.

Secured Credit Card:

The credit score that you get is determined by the credit history that you build over a long time. If you have a very strong history of making payments, you will get a great credit score. Experts have recommended that one must start with secured credit cards. You get approval for these cards easily. The secured credit cards can serve as the perfect starting point for you when you want to build credit.

Almost anyone can get approval for secured credit cards. The regular credit cards are all unsecured and do not require collateral that can be recovered by the creditor. However, in case of secured credit cards, collateral is required. This particular safety net allows individuals with no credit or bad credit an opportunity to get approval.

If you wish to avail a secured credit card, you must deposit a particular amount in the card issuer’s account. This amount, in turn, becomes the limit that you can spend using your secured credit card. Some secured credit cards have low deposit requirements and some have high deposit requirements. Choose the one that suits your needs.

Secured Sbi credit cards can be used like other regular or unsecured cards. The credit card issuer will keep your deposited amount in its account and will use it to cover losses, if any. A debit card and a secured credit card work in the exactly same manner. As long as the credit card issuer sends reports to credit bureaus, you keep building your credit. The issuer must send the reports to bureaus like Experian and Equifax.

Building credit with the help of secured credit cards:

After you get the secured credit card, you must use it for building revolving credit. Lenders will realise that you can handle credit responsibly if you establish a good payment history. However, do not spend too much using your credit card. Ensure that you only spend what you can repay in full at the end of the billing cycle. Ideally, the credit card usage should be below 30% of the total limit on the card.

For example, you can refuel using your credit card every month. This amount will be easy for you to repay and you also build credit. Paying off the entire debt at one go helps you to avoid interest charges.

Practicing patience and remaining dedicated to the entire process of credit building can prove to be challenging. If you want to see some real progress in scores, you will have to build a perfect payment history for a substantial period of time. There is no quick fix or short cut when it comes to credit building.

You can plan on advancing in the world of credit after you have worked towards building credit for a period of 6 to 12 months by establishing great payment history. You can easily apply for a regular credit card, provided to continue to make due payments on time. Getting a car loan can also help you in the credit building process. An auto loan acts an instalment credit. So, when you pay the instalments on time, your credit score goes up.

Bottom Line:

Credit building is of utmost importance if you wish to avail loans from banks or other lenders. Credit score is the first thing that lenders would wish to see before approving your loan request. Ensure that you spend within your limits and pay off your debt on time.

How to make the most of your Fixed Deposits

For a vast majority of Indians, Fixed Deposits was one of the few investment options available. Besides, they were relatively risk-free and would accumulate a small percentage of interest every month and was all in all the most sought after investment avenues.

Fast forward to 2017, where SIPs, ELSS, and countless other products have popped up with the promise of offering bigger and better returns. But, despite all their advantages, they are still connected to the market, making them a riskier proposition, especially considering the trigger-happy economies of the world right now.

In this article, we will talk about the best ways to make use of an FD. Curious to find out? Read on.

• Choose the right tenure

FixedDeposits are typically available for tenures ranging from 7 days to 10 years. The catch with these is that, longer tenure deposits often provide higher returns as well as benefits. But, when you enough money to open an FD, you should never be overly enthusiastic about the returns alone. Take you time and understand your financial requirements.
Say, for instance, you have a major expense planned for an occasion that is two years down the line. Make sure to open an FD that corresponds to that exact period. While at it, you can also consider special tenure FDs for 333 days and 666 days that banks offer when they are in need of immediate funds. Such schemes come with a marginally higher interest rate than regular FDs.

• Get the best payout option

FDs usually come with different payout options. For instance, you can choose to withdraw the interest your money earns on a monthly, quarterly, half-yearly and yearly basis, or let it accumulate so as to collect the principal + interest at the time of maturity. Choosing the reinvest the interest into the deposit will give you a considerably larger corpus after the tenure.

• Never go for premature withdrawal

You may already know that premature withdrawals are possible on fixed deposits, but what you might not know is that every time you do so, you will have to pay a penalty. Meaning, you are likely to lose whatever interest your money has accumulated. An alternative to this would be to split your amount and invest in multiple FDs for varying tenures. This will help you mobilise funds for emergencies without needing to pay any sort of penalties.

• Always go for a tax-saving FD

The entire reasoning behind going for an FD is to save money but your attempts are mooted if you are liable for tax deduction. For instance, FDs that offer returns of more than Rs.10,000 will be taxed depending on the investor’s tax slab. A way to beat this would be to submit Form 15 H/G to the bank. Note that these forms will not absolve you from paying tax for your returns and to mention the money in your IT returns. To skip paying tax on your FD altogether, you should invest in tax-saving FDs, which often come with lock-in periods.

Overall, FDs, like any other investment, can offer you good returns but only when you use the right strategy and following the aforementioned points will help you make the most out of your FD.