Calculate your Fixed Deposit (FD) maturity amount, interest earned, and effective returns. Compare compound interest vs simple interest to maximize your savings.
What is a Fixed Deposit?
A Fixed Deposit (FD), also known as a term deposit, is a financial instrument offered by banks and financial institutions that provides investors with a higher rate of interest than a regular savings account. When you invest in an FD, you deposit a lump sum amount for a fixed period at a predetermined interest rate, and you receive the principal amount plus interest at maturity.
How FD Interest is Calculated
Most fixed deposits use compound interest, which is calculated using the following formula:
A = P × (1 + r/n)^(n×t)
- A = Maturity amount
- P = Principal amount (deposit)
- r = Annual interest rate (as a decimal)
- n = Number of times interest is compounded per year
- t = Time period in years
Types of Fixed Deposits
- Regular FD: Standard fixed deposit with a lump sum amount for a fixed tenure
- Tax-Saving FD: 5-year FD that qualifies for tax deduction under Section 80C
- Senior Citizen FD: Special FDs with higher interest rates for senior citizens
- Cumulative FD: Interest is compounded and paid at maturity along with principal
- Non-Cumulative FD: Interest is paid out periodically (monthly, quarterly, or annually)
- Flexi FD: Combines savings account and FD features with automatic sweep facility
Compounding Frequency Explained
- Monthly Compounding: Interest is calculated and added to principal every month (12 times/year)
- Quarterly Compounding: Interest is compounded every 3 months (4 times/year) - most common
- Half-Yearly Compounding: Interest is compounded twice a year (every 6 months)
- Annual Compounding: Interest is compounded once a year
- More frequent compounding results in higher returns due to interest earning interest
Benefits of Fixed Deposits
- Guaranteed Returns: Fixed and guaranteed interest rate throughout the tenure
- Safety: Bank FDs up to ₹5 lakh are insured by DICGC (Deposit Insurance and Credit Guarantee Corporation)
- Flexible Tenure: Choose from 7 days to 10 years based on your needs
- Loan Facility: Can avail loan against FD up to 90% of deposit value
- Regular Income: Non-cumulative FDs provide periodic interest payouts
- Senior Citizen Benefits: Higher interest rates (typically 0.25-0.50% extra)
Important Considerations
- Premature Withdrawal: Penalty charges apply (typically 0.5-1% interest reduction)
- Tax on Interest: FD interest is taxable as per your income tax slab
- TDS Deduction: 10% TDS if annual interest exceeds ₹40,000 (₹50,000 for senior citizens)
- Inflation Impact: Real returns may be lower after accounting for inflation
- Lock-in Period: Tax-saving FDs have mandatory 5-year lock-in period
- Interest Rate Fluctuations: Rates vary based on RBI policy and bank discretion
Maximizing Your FD Returns
- Compare interest rates across different banks before investing
- Choose cumulative FD for higher returns (compound interest benefit)
- Consider laddering FDs with different maturity dates for liquidity
- Take advantage of special FD schemes during festive seasons
- Senior citizens should always check for special rates
- Use FD calculator to compare different tenure and rate options
- Submit Form 15G/15H if your total income is below taxable limit to avoid TDS
💡 Pro Tip
For maximum returns, choose quarterly compounding with cumulative interest payout. This allows your interest to compound more frequently, significantly increasing your returns over longer tenures. For example, ₹1,00,000 at 7% for 5 years yields ₹41,478 with quarterly compounding vs ₹40,255 with annual compounding - a difference of ₹1,223!