This deposit calculator estimates how much money you could save and how much interest you could earn over time for a deposit with compounding interest. Everything there is to know on this topic you can learn below the form.
How does this deposit calculator work?
This tool may help you make better financial decisions on how to place your savings. It takes into consideration the initial principal deposited together with the compounding interest frequency and the average annual interest rate during the desired term in years. The estimation of the value you should expect from your account is calculated by the formula explained in the next lines:
A = P(1+r/n )nt
A = Ending amount of money you will get from the deposit
P = Deposit amount (principal)
r = Interest rate (expressed as a decimal)
n = Number of compounding a year. For annually compounding the n= 1, for Semiannually compounding the n= 2, for Quarterly compounding the n= 4 while for Monthly compounding the n= 12.
t= total number of years you choose to make the deposit.
Please take into consideration that this deposit calculator assumes that the interest rate is fixed during the specified term.
The deposit often called as certificate of deposit is a savings account in which someone places a certain principal amount of money for a fix term usually expressed in years or months at a fixed interest rate. That means the money cannot be used by the owner, unless the owner acknowledges he will lose any interest earned in case wants access to money before the term to expire.
How to plan your savings and deposit them?
Even though there is no 100% checklist on how to make better financial decisions for a secure future we’ve tried to put together few steps you should think of when trying to figure out how much money you should save and then deposit or how long will take you to achieve your goals:
1. First you have to define your goals in terms of the amount of money you will need for any kind of plans or for financing unwanted changes such as: losing your job, health or family problems, retirement plans, acquisition plans or travel plans or any other targets you may set up;
2. Second you have to define your savings capabilities by calculating the difference between your monthly income and your monthly expenses;
3. Then you have to try diminishing or keeping under control your monthly expenses as much as you can while keeping the desired life standard;
4. Try to add new income sources to the existing ones, while ensuring that your stable income sources are not exposed to potential risks;
5. Try to get the highest interest rate on the market which also depends on the term you want to deposit your money, so you have to be aware that you will not need these funds within this term, otherwise you may lose the interest;
6. Try to determine how quickly your deposit will grow up as such to achieve your goal. At this step it is recommended for you to use a deposit calculator in order to simulate few scenarios that take account of the following hypothesis:
- return rate may change (increase or decrease) over time so you need to estimate different levels of average interest rate and try to determine the optimal period you have to deposit your money in order to re-deposit them after a certain time in order to get a better/higher rate of return;
- the term of the deposit determines the ending balance and the total interest accumulated to the, so the longer the term is the higher the final balance will be;
- the interest rate varies depending on the term length, so you have to take into account different periods and test their associated return rate.
7. Establish the term you intent to deposit your money and/or saving on a regular basis.
Advantages and disadvantages of fixed deposits
The main advantage is that you cannot access your money and therefore you won’t be able to spend them, but in the same time for some people this may be considered as a disadvantage because in case of an unexpected event you can access your money but you lose the interest.
The second advantage of fixed deposits is that they usually came with higher interest rates than savings account that have instant access to funds. That also means the interest rate depends on the desired term, which for people willing to deposit their money for a longer period may seem attractive.
This financial instrument is considered as a low risk/no risk investment compared to other options such stocks for instance where volatility in price is unpredictable and the risk is considered significant higher. The disadvantage is that compared to other financial instruments the deposit can not ensure the same return rate. As expected the return is a measure of the risk exposure.
Last but not least another advantage of the fixed deposits is that the return rate is negotiated at the beginning of the contract and is constant, while in case of other options the return rate may chance over time. This can be considered as a disadvantage too because the interest rate may increase over time, while your money are stuck in your deposit at a smaller rate.05 Dec, 2014