How fixed deposit interest is calculated
A fixed deposit (FD) pays a guaranteed interest rate on a one-time deposit locked in for a fixed
tenure. Banks usually compound interest quarterly, so the maturity value of a
cumulative FD is:
- Maturity = P × (1 + r/n)n×t
where P is the deposit, r the annual rate, n the compounding periods per year (4 for quarterly) and
t the tenure in years. More frequent compounding gives a slightly higher maturity, which is why the
calculator lets you switch between monthly, quarterly, half-yearly and yearly compounding.
Cumulative vs monthly-income FD
A cumulative FD reinvests the interest so it compounds into a single lump sum at
maturity — best for growing your money. A monthly-income (payout) FD pays the
interest out to you every month or quarter and returns only the principal at maturity — best for
retirees who want a steady income. Switch modes above to compare both from the same deposit.
TDS on FD interest
Banks deduct 10% TDS when your FD interest in a financial year crosses
₹40,000 (₹50,000 for senior citizens); without a PAN it is 20%. TDS is
only advance tax — your final liability depends on your slab, so check it with our
income tax calculator. If your total income is below the
taxable limit, submit Form 15G/15H to avoid TDS. Senior citizens can also claim up to ₹50,000
interest deduction under Section 80TTB.
FD vs RD, NSC and other options
An FD suits a one-time lump sum; a recurring deposit suits monthly
saving. For a tax-saving fixed-return option compare the 5-year NSC,
and for tax-free long-term growth see PPF. For potentially higher
(though market-linked) returns, an SIP is worth considering alongside
your FDs.
FD interest formula, laddering, inflation and loan against FD
Banks calculate cumulative fixed-deposit interest with the compound-interest
formula A = P(1 + r/n)^(nt) — the same calculation used across all
fixed deposits. A few things worth knowing: an FD ladder (splitting
your money across staggered tenures so one deposit matures each year) improves liquidity; FD returns
are not adjusted for inflation, so it is worth comparing the real return against a
market-linked mutual fund SIP; and you can raise cash by taking a
loan or overdraft (OD) against your FD instead of breaking it.
Frequently asked questions
How is interest calculated on a fixed deposit?
For a cumulative FD, interest is compounded — usually quarterly by banks — and reinvested, so you earn interest on interest. The maturity value is P × (1 + r/n)^(n×t), where P is your deposit, r the annual rate, n the number of compounding periods per year and t the tenure in years. For a monthly-income (payout) FD, interest is paid out regularly and the principal is returned at maturity.
What is the difference between cumulative and payout FD?
In a cumulative FD the interest is added back to the deposit and compounds, giving you a single lump-sum maturity value at the end — ideal for growth. In a payout (non-cumulative) FD, the interest is paid out to you every month or quarter as regular income and only the principal is returned at maturity — ideal for retirees who want a steady income.
How much interest will I get on a 5 lakh FD?
At a 7% annual rate compounded quarterly, Rs 5,00,000 grows to about Rs 7,07,000 in 5 years — roughly Rs 2,07,000 of interest. As a monthly-income FD at 7%, the same Rs 5 lakh pays about Rs 2,917 per month. Enter your own amount, rate and tenure above for the exact figure.
How is TDS on FD calculated?
Banks deduct 10% TDS on your FD interest if the total interest in a financial year exceeds Rs 40,000 (Rs 50,000 for senior citizens). If you do not provide your PAN, TDS is 20%. TDS is only a tax collected in advance — your actual tax depends on your slab, and you can claim a refund or submit Form 15G/15H if your income is below the taxable limit. The calculator shows an estimate based on your interest.
Do senior citizens get a higher FD rate?
Yes. Most banks offer senior citizens an extra 0.25%–0.75% over the regular FD rate. Senior citizens also get a higher TDS exemption limit of Rs 50,000 on interest, and can claim a deduction of up to Rs 50,000 under Section 80TTB. Turn on the senior-citizen option above and enter your applicable rate to reflect this.
What happens if I break my FD before maturity?
Premature withdrawal is allowed but the bank pays interest at the rate applicable for the period the deposit actually stayed, and usually applies a penalty of about 0.5%–1%. So if you break a 5-year FD after 2 years, you earn roughly the 2-year rate minus the penalty, not the original 5-year rate. Keep this in mind before locking money you may need early.
FD vs RD — which should I choose?
A fixed deposit is a one-time lump-sum investment, while a recurring deposit lets you invest a fixed amount every month. Choose an FD when you already have a lump sum to park, and an RD when you want to build savings gradually from your monthly income. Use our RD calculator to compare.