Fixed Deposit Calculators III: How many days are there in a year?

Published: August 31, 2013 at 7:32 am

Last Updated on

How many days are there in a year?  According to Google it is 365.242 days. If I hold one year fixed deposits and determine maturity values using 365.242 days as the tenure, will my calculation match the maturity values listed in the bank statement? Unlikely.

Perhaps I should round it off and use 365 days? If my calculation still does not match the value the bank says it will offer, what should I do? Perhaps assume there are 360 days in a year? After all if I assume there are 30 days in a month then 12 X 30 = 360.

These are the kind of questions which were asked by reader Ravindra who was trying to tally the maturity value given by my fixed deposit calculators (which assume 365 days per year) with his bank statements.

There are many minor variations of the compounding formula. Different banks use different versions. So do many online calculators.

Why bother? After all the bank will only offer what it calculates. No doubt about that.  However if you need to find out the tax  (advance tax if applicable) to be paid each year, then the exact maturity value should tally with our calculation.

To me, there seems to be only one way to tally the results. When the bank statement does not match with a calculator, use the maturity value in the bank statement and determine the effective number of days in a year used in the calculation.

If it is 365, then great. My calculators will work fine. If it is less than 365 then you can use the result to get the maturity value given by the bank and find out the tax you need to pay each financial year along with the advance tax liability if applicable.

How it works:

1. Use the first calculator to:

  • determine maturity value, using starting and ending dates of the FD.
  • You can also calculate total pre-tax and post-tax corpus for 365 days and 360 days per year.
  • to determine the effective number of days used by the bank in calculating FD maturity value. This is especially useful if the maturity value does not match with the bank statement

Download the fixed deposit maturity value and effective number of days in a year calculator

Join our 1500+ Facebook Group on Portfolio Management! Losing sleep over the market crash? Don't! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free! Did you miss out on the lockdown discount? You can still avail it! Follow instructions in the above link!

2. If the effective number of days is different from 360 or 365, enter it in the second calculator to determine:

  • post-tax corpus. Pre-tax corpus will now tally with the bank statement.
  • Tax to be paid each financial year
  • advance tax liability if any

Download the fixed deposit tax liability calculator (using effective number of days in a year)

According to Ravindra, SBI uses 365 days per year. So my fixed deposit calculators will work just fine.

HDFC uses 363.927 per year. I can live with it although I don’t understand the choice.  This could be due to a difference in the way daily/monthly interest is calculated.

For example, if I say annual interest is 12%, then effective monthly interest is not 12%/12 = 1% but  (1+12%)^(1/12)-1 = 0.949%. A small difference – nothing to lose sleep over. Many people avoid this complication and simply use 12%/12. For more details see: Mutual Fund SIP Returns Calculator

According to Ravindra, using my effective no of days in a year calculator, he gets 353.055 per year for a fixed deposit offered by IDBI bank. I don’t understand this logic. Can you?

Do use the calculators and check with your bank statements and let me know if the bank records tally with the standard 365 days per year calculation or not. If you have friends or family working in banks please forward them this article and see if they can make sense out of this.

Related articles

 

Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps