How FD interest is calculated
Most Indian banks compound FD interest quarterly:
A = P × (1 + r/4)^(4t)
where P is the deposit, r the annual rate and t years. Quarterly compounding makes the effective yield slightly higher than the quoted rate — a 7% FD effectively yields about 7.19% per year.
Things to know before booking an FD
- Senior citizens typically get 0.25–0.50% extra.
- Interest is fully taxable at your slab rate. Banks deduct TDS if annual FD interest crosses the threshold — submit 15G/15H if you're below the taxable limit.
- Premature withdrawal usually costs a 0.5–1% penalty on the applicable rate.
- Deposits up to ₹5 lakh per bank are insured by DICGC.
FAQs
Is FD interest paid monthly or at maturity?
Both options exist. Cumulative FDs reinvest interest (this calculator). Non-cumulative FDs pay out monthly/quarterly at a slightly lower effective rate.
Which is better — FD or debt mutual fund?
FDs give guaranteed, insured returns; debt funds may return more but carry market risk and different taxation. For short-term parking and capital safety, FDs remain the simple choice.