Fixed deposits look simple - you give the bank money, it pays interest - but the maturity amount depends on a compounding formula most deposit cards never show. Understanding it lets you compare banks fairly instead of trusting the headline percentage.
The FD formula
Every Indian bank values a fixed deposit with the compound interest formula:
Maturity = P × (1 + r / n)n × t
- P = principal deposit
- r = annual interest rate (as a decimal, e.g. 7% = 0.07)
- n = number of compounding periods per year
- t = tenure in years
Worked example: Rs 1 lakh at 7% for 5 years
With quarterly compounding (the Indian bank standard): 1,00,000 × (1 + 0.07/4)4 × 5 = Rs 1,41,478, so the interest is Rs 41,478. The identical deposit at yearly compounding matures at about Rs 1,40,255 - quarterly compounding adds roughly Rs 1,220 for free.
Why compounding frequency changes your money
Interest that is credited more often starts earning interest sooner. For a fixed quoted rate, monthly compounding gives the highest return, quarterly the standard, and yearly the lowest. Indian banks almost always advertise the quarterly figure, which is why the FD calculator defaults to it.
What interest rates should you expect in India?
Large public and private banks commonly price 1-5 year deposits around 6.5-7.25% p.a.. Small finance banks and NBFCs often stretch to 7.5-8.5% p.a., though you trade some safety - deposits above Rs 5 lakh sit beyond the DICGC insurance cover. Senior citizens typically earn an extra 0.25-0.50% on every tenor.
The tax side of FD interest
Interest is added to your income and taxed at your slab rate. Banks deduct 10% TDS once yearly interest across your FDs in a branch exceeds Rs 40,000 (Rs 50,000 for senior citizens). If your total income is below the taxable limit, submit Form 15G or 15H to stop the deduction, and declare the interest when you file your return either way.
Try your own figures with the free FD Calculator - choose the compounding frequency your bank quotes and see the exact maturity, interest earned and effective annual yield. If you are comparing against a loan, the Loan Calculator shows the other side of the equation.