How is FD interest calculated?

Most banks compound a cumulative FD every quarter: A = P × (1 + r ÷ 4)^(4t). ₹1,00,000 at 7% for 5 years becomes ₹1,41,478.

Why is the effective yearly return higher than the FD rate?

Because interest is added every quarter and earns interest itself. At 7%, a year of quarterly compounding gives 7.19%.

Why does a payout FD earn less interest in total?

Interest paid out stops earning interest. Over 5 years at 7%, quarterly payouts total ₹35,000 on ₹1,00,000, against ₹41,478 when the interest is kept in.

When does the bank deduct TDS on FD interest?

When a financial year’s interest from that bank crosses ₹50,000, or ₹1 lakh for senior citizens, including interest added to a cumulative FD.

FD Calculator: Fixed Deposit Maturity, Interest and Payouts

Type the deposit, your bank’s rate and the period. See the maturity amount, or the interest paid every month or quarter, and the value each year.

How to use it

Type the amount you deposit.
Type your bank’s FD rate for that period. Rates differ by bank and by period, and senior citizens are usually offered a little more.
Type the period in years and months.
Pick how the interest comes: added to the deposit (a cumulative FD), or paid out every quarter or every month.

For a cumulative FD you get the maturity amount, the interest, the effective yearly return and the value each year; for a payout FD, each payment and the total.

The formula

Most banks add interest to a cumulative FD every quarter: A = P × (1 + r ÷ 4)^(4t), where P is the deposit, r the yearly rate as a fraction (7% is 0.07) and t the years. A part quarter at the end earns simple interest. Because interest earns interest every quarter, the effective yearly return is a little above the rate: 7.19% for a 7% FD.

Worked example

₹1,00,000 for 5 years at 7% a year, interest kept in:

Year	Value at year end	Interest so far
1	₹1,07,186	₹7,186
2	₹1,14,888	₹14,888
3	₹1,23,144	₹23,144
5	₹1,41,478	₹41,478

Kept in, the interest comes to ₹41,478. Paid out every quarter instead, it is ₹1,750 a quarter (₹1,00,000 × 7% ÷ 4) and ₹35,000 over 5 years, ₹6,478 less, because interest paid out earns nothing more. Paid monthly, the plain figure is ₹583 a month (₹1,00,000 × 7% ÷ 12); many banks pay a little less, because they discount monthly interest.

Things that change the result

Tax: FD interest is taxed at your slab rate, on interest added to a cumulative FD each year as well as on interest paid out. A 5-year tax-saving FD counts towards the ₹1.5 lakh deduction under the old tax regime, but cannot be broken early.
TDS: the bank deducts tax at source when a financial year’s interest crosses ₹50,000 (₹1 lakh for senior citizens). A declaration in Form 121, which replaced Forms 15G and 15H, stops it when the tax on your income for the year will be nil.
Breaking early: banks usually pay the rate for the period actually completed, less a penalty, often 0.5% to 1%.
Deposit insurance: DICGC insures deposits in each bank up to a set limit for each depositor, principal and interest together; its website, dicgc.org.in, gives the current limit.

Questions people ask

How is FD interest calculated?: Most banks compound a cumulative FD every quarter: A = P × (1 + r ÷ 4)^(4t). ₹1,00,000 at 7% for 5 years becomes ₹1,41,478.
Why is the effective yearly return higher than the FD rate?: Because interest is added every quarter and earns interest itself. At 7%, a year of quarterly compounding gives 7.19%.
Why does a payout FD earn less interest in total?: Interest paid out stops earning interest. Over 5 years at 7%, quarterly payouts total ₹35,000 on ₹1,00,000, against ₹41,478 when the interest is kept in.
When does the bank deduct TDS on FD interest?: When a financial year’s interest from that bank crosses ₹50,000, or ₹1 lakh for senior citizens, including interest added to a cumulative FD.

FD calculator