When it comes to guaranteed returns, choosing the right type of investment is important. So what could be a better option than a fixed deposit (FD) offered by any bank or a financial institution.

Fixed deposits are investment scheme where one can deposit his funds for a fixed period and earn a pre-determined interest rate. Basically they are common amongst average investors who are risk averse and prefer to invest in safe instruments. FDs are considered to be safe because they are subject to control of the Reserve Bank of India. In fact all bank deposits are reasonably safe because banks are subject to control of the RBI with regard to several policy and operational parameters.

Interest income

Fixed deposits earn higher interest rate in comparison to the savings bank account. Moreover the interest offered on a fixed deposit depends on the tenure for which the deposit is fixed by the investor. Usually if the maturity period of a deposit is longer, the interest earned on a FD is higher and vice-versa. Interest paid on a FD is either calculated a monthly basis or once a quarter according to the investor's choice. For instance if you invest Rs 2 lakh for one year at 9%, then you get a monthly interest of Rs 1500 or a quarterly interest of Rs 4500. This can be calculated through our fixed deposit interest income calculator.

Effective return

Normally a FD does not provide a regular interest income but a lump-sum amount on its maturity. Effective rate of return means that the interest earned during a year is not paid but reinvested further. It ensures one to earn higher interest as compared to the interest earned on yearly basis. Here the interest gets compounded over the period of investment.. When the interest rate calculated is based on compound interest then the actual return on maturity increases compared to the rate of interest offered on the deposit.