How FD interest is calculated
Banks use the compound interest formula: Maturity = P × (1 + r / n) n × t where P is your deposit, r is the annual rate, n is how many times interest compounds per year and t is the tenure in years.
Worked example
Deposit Rs 1,00,000 at 7% p.a. for 5 years, compounded quarterly: Maturity = 1,00,000 × (1 + 0.07 / 4)4 × 5 = Rs 1,41,478, so you earn Rs 41,478 in interest. The same deposit compounded yearly earns about Rs 40,255 - quarterly compounding adds roughly Rs 1,220.
Why compounding frequency matters
- Yearly: interest credited once - lowest return.
- Half-yearly: interest credited twice a year.
- Quarterly: the standard for most Indian banks.
- Monthly: best quoted return for non-cumulative deposits.
Rough return table (Rs 1 lakh deposit)
| Rate | 1 yr | 3 yrs | 5 yrs | 10 yrs |
|---|---|---|---|---|
| 6% | Rs 1.061 L | Rs 1.196 L | Rs 1.347 L | Rs 1.814 L |
| 6.5% | Rs 1.067 L | Rs 1.213 L | Rs 1.380 L | Rs 1.906 L |
| 7% | Rs 1.072 L | Rs 1.231 L | Rs 1.415 L | Rs 2.002 L |
| 7.5% | Rs 1.077 L | Rs 1.250 L | Rs 1.450 L | Rs 2.102 L |
| 8% | Rs 1.082 L | Rs 1.268 L | Rs 1.486 L | Rs 2.208 L |
Values rounded to nearest Rs 100. Assumes quarterly compounding. Use the calculator above for your exact numbers.
Frequently asked questions
What is a good FD rate right now?
Large private and public banks commonly quote around 6.5-7.25% p.a. on 1-5 year deposits, while smaller banks and NBFCs often offer 7.5-8.5%. Senior citizens receive an extra 0.25-0.50%. Rates change, so always verify the current card.
Is the interest pre-tax or post-tax?
Pre-tax. Interest is added to your annual income and taxed at your slab rate. Banks deduct 10% TDS when annual interest on all FDs in a branch crosses Rs 40,000 (Rs 50,000 for senior citizens).
Does premature withdrawal reduce interest?
Usually yes. Most banks apply a penalty of 0.50-1% on the applicable rate if you close the deposit before maturity, and some deposits like tax-saving FDs lock money for 5 years entirely.