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Astonishingly Simple Ways to Get Interest on Interest

Ever thought of getting interest on the interest you earn on your bank account deposits? Interest on interest is essentially compound interest earned on your deposit. You can use your fixed deposit account or your recurring deposit account to avail compound interest. It works on this simple principle- higher the frequency of interest being added to your account balance, faster is the growth of your savings. There are majorly two types of deposit accounts where compound interest can be availed- fixed deposit and recurring deposit.

Fixed Deposit Account

Having a fixed deposit account favors the concept of compound interest calculation. While many people think that fixed deposit ties up your savings, it essentially provides you an opportunity to multiply your savings over the long run. The interest on fixed deposit accounts are added at the end of the deposit tenure. With compound interest calculation, the next cycle of interest is added on the amount accumulated from the interest in the previous year as well as the original savings amount. You must make sure that you opt for reinvestment of interest for the fixed deposits paying highest interest rates. This could help in earning better interest annually. The reinvestment option is best for longer tenure deposits. A simple calculation to understand how you earn interest on interest in a fixed deposit account is given below:

Suppose, you have a fixed deposit of INR 10,000 and the fixed deposit interest rate is 10% which is compounded annually. At the end of one year, you can get 11,000 and the next year, the interest is compounded on INR 11,000. So, if your fixed deposit is for a tenure of 5 years, at the end of five years, the final amount you can gain is INR 16105.10.

Recurring Deposit Account

Recurring deposits are when you deposit a pre-decided amount for a specific tenure in your account and the interest availed on it with compound interest calculation. It is an advisable option since you only have to deposit a certain amount from your savings at regular intervals rather than depositing a lump sum amount. In a recurring deposit scheme, the predefined tenure varies from one year to ten years. The individual can reinvest the interest earned on the deposits. Recurring deposit schemes come with guaranteed returns and the rate of interest for recurring deposit is locked in. Locked interest rates protect the investor from interest rate swings. Since the interest calculation is the same as fixed deposit account, you are bound to earn higher interest than non-compounded accounts.

Now that you know the secret behind earning interest on your earned interest, go ahead and open a deposit account with compound interest calculation today!

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