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
₹50,000 (₹1,00,000 for resident senior citizens), assuming PAN is provided. TDS is
only advance tax — your final liability depends on your slab, so check it with our
income tax calculator. Submit a non-deduction declaration only
if you meet its eligibility conditions. Senior citizens can also claim up to ₹50,000
interest deduction under Section 80TTB in the old regime; this is separate from the TDS threshold.
The TDS estimate uses only this deposit and groups interest into successive 12-month periods.
It does not know your opening date, April–March financial-year split, other deposits at the same
bank, PAN status or exemption declarations. Actual withholding can therefore differ. Cumulative
maturity is shown before tax, without reducing the compounding balance for TDS deductions.
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?
For resident depositors, the bank-deposit interest threshold is Rs 50,000 per financial year, or Rs 1,00,000 for senior citizens, from 1 April 2025. With PAN, the usual TDS rate is 10% on the whole eligible interest once the threshold is exceeded, not just the excess. Interest is aggregated at the bank, not separately for each deposit. This calculator assumes PAN and no exemption declaration, and approximates financial years as successive deposit years. TDS is advance tax, not your final tax liability; submit a non-deduction declaration only if you meet its eligibility conditions.
Do senior citizens get a higher FD rate?
Many banks offer an additional rate for senior citizens; enter the rate actually offered by your bank. Resident senior citizens have a bank-interest TDS threshold of Rs 1,00,000 per financial year. This is separate from the interest deduction of up to Rs 50,000 under Section 80TTB in the old regime. Turn on the senior-citizen option to apply the higher TDS threshold; it does not automatically increase your entered interest rate.
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.