Calculate Interest on Overdraft Against Fixed Deposit
Before opening a Fixed Deposit (FD) account or taking an overdraft against an existing FD, it's essential to calculate the potential returns and interest earnings.
To calculate the interest on your Fixed Deposit, you need to multiply the principal amount (say Rs. 5,00,000) by the interest rate (let’s take 6%) and then divide the result by 100. Following this formula and figures, the interest on your Fixed Deposit amounts to Rs. 30,000.
For the overdraft facility, you can only avail up to 90% of the principal amount - Rs. 4,50,000 in this case.
The interest rate is determined by adding the base interest rate (6%) with the spread (2%). This calculation results in an overdraft interest rate of 8%.
To determine the interest payable on a selected amount utilised from the overdraft ( say you need Rs.1,00,000), you multiply the overdraft amount by the overdraft interest rate and divide the result by 100. Thus, the interest payable on the amount (of Rs.1,00,000) used from the overdraft comes to Rs. 8,000.
Consequently, when utilising Rs. 1,00,000 from the overdraft facility against your Fixed Deposit, the interest payable would amount to Rs. 8,000.
For overdraft against FD, a calculator can help carry out the calculations easily. You can also understand the interest earned on your FD and the interest payable. Remember that calculators will only give you the numbers without factoring in for other provisions and circumstances, the actual returns and interest earnings may vary accordingly.
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