An individual’s financial goals are the objectives they set for themselves in order to achieve certain milestones. Typically, such financial goals can either be long-term or short-term plans. However, just having a financial goal is not enough and you must make sure to build a strategy to ace them. This is where a financial tool like an FD calculator can come in handy.
Essentially, an FD calculator is a financial tool that allows users to estimate interest amount and maturity amounts they can expect to earn via a fixed deposit scheme based on their invested sum and tenure. Such a tool does not help offer insight into estimated accumulated sum but also facilitates comparison of different FD schemes and in turn helps optimize tax savings.
Let us dive deeper into how an FD calculator can help meet financial goals by taking a look at the article below.
How to Set Financial Goals for Yourself?
Here’s a basic cheat sheet of how to set financial goals for yourself:
- Set clear goals: Your financial objectives should be well-defined. In other words, you should be clear about what you wish to achieve, the amount of money you would require, and the time frame within which you wish to ace them.
For instance, based on your intended goal, say buying a car or building an emergency corpus, you can start parking a set amount of money in a fixed deposit scheme for a certain time.
- Ensure your goals are measurable: It is crucial that your financial goals are measurable. For instance, you are planning to save Rs. 1 lakh in 30 months. This will help you understand whether the same is scalable and help track your progress and efforts with more accuracy.
- Set achievable goals: Make sure that your financial goals are attainable and practical. To ensure this, weigh in factors such as your existing circumstances, resources at hand, and limits. It would also help if you break your big goals into sub-goals to accomplish them with more ease. Make use of financial tools like FD calculator when planning to meet your financial goals through instruments like fixed deposits.
- Lay down a time frame: Make it a point to set a deadline or a fixed time frame for your goals by setting a start and end date to achieve them. This small step will create a sense of urgency and provide a direction to move toward the goal.
In a simple way, instead of saying that I want to save money, be more specific. For instance, I want to save Rs. 1 lakh in 18 months for an international trip.
How to Choose a Suitable FD Scheme to Meet Your Financial Goals?
Fixed deposits are among the most popular and safe investment instruments in India. FDs are popular for offering guaranteed returns, flexible tenure, and security of one’s capital. However, the fruitfulness of a fixed deposit scheme in meeting a financial goal depends on several factors. This is because, selecting the right kind of FD plan is closely dependent on numerous elements such as interest rate, liquidity, maturity amount, and tax benefits.
That said, here are a few effective tips that will help you pick the right kind of fixed deposit scheme to meet your financial goals:
Tip 1: Consider your goal and investment horizon
Firstly, you need to ascertain whether your goal is long-term or short-term and then pick an FD scheme that suits it the best.
Usually, investors, with short-term goals that can be achieved in less than a year, opt for non-cumulative fixed deposits. Such schemes pay interest at set intervals that can be monthly, quarterly, yearly, or half-yearly, thus acting as a steady stream of income. On the other hand, those with long-term goals that take over a year to accomplish, often opt for cumulative fixed deposits. Such FD schemes, reinvest the interest amount with the principal amount and then pay the same at maturity. This helps accumulate a higher maturity amount which can be used to ace the set financial goals with ease.
Tip 2: Compare FD interest rates and maturity amount
It is important to note that different NBFCs and banking institutions offer different interest rates on their FD schemes. Needless to say, this affects the maturity amount of the schemes. This is why financial calculators like an FD calculator can help you understand which scheme would offer you the highest return against a principal amount and over a given tenure.
Notably, the interest rate for regular and senior citizen customers also tends to vary and so do the rates of cumulative and non-cumulative FD schemes. So keep these choices in mind and then proceed to compare them for better insight.
Tip 3: Find out the tax implications
Fixed deposits are subject to TDS as per the prevailing interest rate. This becomes applicable if the interest earned in a given year exceeds Rs. 40,000 for regular customers, who then will have to pay 10% TDS. The lower limit of the same is Rs. 50,000 for senior citizens and they have to pay 20% TDS on it.
However, FD holders are entitled to claim tax deductions on the same under Section 80TTB of the Income Tax Act. Under the provision, senior citizens can claim a maximum of Rs. 50,000, while others can avail the same up to Rs. 10,000. Note that if the income tax of the FD holder is over 10% then they would be paying additional tax based on their income tax slab.
Tip 4: Check the liquidity of the fixed deposit scheme
The liquidity of an FD scheme implies how easily fixed deposit holder can withdraw their deposits before maturity. Typically, most fixed deposit scheme levy a penalty on premature withdrawals, which in turn lower interest and maturity amount. Hence, it is advisable to look for FD schemes that accompany zero penalties or comparatively low penalties on premature withdrawals. This will have a minimal impact on their savings when they sought out FD withdrawals during an emergency.
How to Use an FD Calculator to Plan Your Budget?
Here’s a step-by-step guide to how to use an FD calculator to plan a budget:
Step 1: Enter the amount you plan on investing in a fixed deposit account
Step2: Enter the investment tenure based on your financial goals
Step 3: Select the type of fixed deposit scheme from cumulative or non-cumulative FD options
Step 4: Pick the compounding frequency
Note that interest on FD can be compounded monthly, quarterly, semi-annually, or yearly based on the type of fixed deposit
Step 5: Select the TDS option based on your income tax liability and exemption limit
Once these details are entered and the automated interest rate of accounted for, the calculator will display the estimated interest amount you will earn on your investment. Note that the interest rate may vary based on the invested amount, the tenure, and the financial institution.
The outcome will help you to compute your tax liability and then optimize your tax savings accordingly. An FD calculator allows multiple readjustments, so you can easily change the variables to ascertain how the same affects your maturity amount and plan your financial accordingly.
