How is FD interest calculated?

Most Indian banks compound quarterly: the advertised annual rate is divided by four and applied every three months, with the interest added to the balance so it compounds. This makes the effective annual rate slightly higher than the advertised one — 7.186% on a 7% deposit.

Why is the effective rate higher than the advertised rate?

Because interest earned in the first quarter itself earns interest for the remaining three. The advertised rate ignores that; the effective rate accounts for it. The gap widens with more frequent compounding, which is why a monthly-compounding deposit beats a quarterly one at the same headline rate.

Is FD interest taxable?

Yes, at your slab rate, in the year it accrues rather than the year you receive it. Banks deduct TDS once interest crosses the threshold, but TDS is not the full liability — you owe the difference between it and your slab rate.

Is an FD better than PPF?

For a top-bracket taxpayer, usually not. PPF's 7.1% is untaxed at every stage, so a taxable deposit needs to pay around 10.1% to match it, which is not on offer. An FD's advantages are liquidity, no ceiling on the amount, and no fifteen-year lock-in — which matter, but are not about the return.

What happens if I break the FD early?

Most banks apply the rate for the period actually completed, reduced by a penalty of typically 0.5% to 1%. That can turn a five-year return into something close to a savings account rate if you exit early, which is why money you might need should sit in a shorter deposit or a liquid fund.

How much of my deposit is insured?

₹5,00,000 per depositor per bank, covering principal and interest together and applying across all your accounts at that bank. Larger amounts are worth splitting across banks, since no rate advantage compensates for an uninsured loss.

Investment · FINANCIAL TOOLS

Fixed Deposit Calculator

Work out an FD maturity value, and the effective rate quarterly compounding actually pays you.

Understand the calculation

Calculation logic, formula, example and guardrails behind the estimate.

How it works

The deposit compounds at the frequency you select and the whole amount is received at maturity. Indian banks compound quarterly unless they state otherwise, which is why that is the default here.

Alongside the maturity value, the calculator reports the effective annual rate — what the deposit genuinely earns once within-year compounding is counted. A 7% deposit compounded quarterly earns 7.186%; compounded monthly it earns 7.229%. Those are different products advertised with the same number.

More detail

The effective rate is the only sound basis for comparing deposits. A bank quoting 7.10% compounded annually pays less than one quoting 7% compounded quarterly, and no amount of staring at the headline rates will tell you that.

This models a cumulative deposit, where interest is retained and compounds. A non-cumulative deposit pays interest out instead, which stops it compounding — the SCSS calculator shows what that costs.

To save monthly rather than in one sum, use the recurring deposit calculator.

For the tax-free alternative, see the PPF calculator.

To see what tax takes from the interest, try the income tax calculator.

Formula

M = P × (1 + r/n)^(n × t); Effective rate = (1 + r/n)ⁿ − 1

The second expression is the useful one. It collapses any compounding frequency into a single comparable annual figure, which is what lets you rank deposits that are quoted on different conventions.

M: Value at maturity.
P: Amount deposited.
r: Advertised annual rate, as a decimal.
n: Compounding periods a year — 4 for most banks.
t: Term in years.

Worked example

₹10,00,000 deposited at an advertised 7%, compounded quarterly, for five years.

01Quarterly rate7% ÷ 4 = 1.75%
02Number of periods4 × 5 = 20
03Value at maturity₹14,14,778
04Interest earned₹4,14,778
05Effective annual rate7.186%
06Same rate compounded annually₹14,02,552

Quarterly compounding adds ₹12,226 over five years relative to annual compounding on the identical headline rate. That is the entire difference between two deposits that would look the same in an advertisement — and it is why the effective rate is the figure to compare.

Important considerations

01
Compare effective rates, never headline rates
Compounding frequency is not always prominent in the advertisement, and it changes the answer. Convert every deposit you are considering to its effective annual rate first — the scenario table above does exactly that for four frequencies on one headline rate, and the spread is wider than most rate differences between banks.
02
Tax is what makes PPF competitive
A 7% deposit is 4.90% after 30% tax on a nominal basis, or 5.03% using the effective rate. PPF at 7.1% is untaxed, so it beats a taxable deposit paying anything under about 10.1% for a top-bracket investor. Rate comparisons that ignore tax treatment consistently reach the wrong conclusion.
03
Laddering handles the rate you cannot predict
Locking a rate protects you if rates fall and costs you if they rise. Splitting a deposit across several maturities means part of it reprices each year, which gives up some certainty for the ability to respond. It also means an early need for cash breaks one rung rather than the whole deposit.

Limitations

Tax is not computed. Interest is taxable at your slab rate, and TDS applies above the threshold — which makes a 7.186% effective return about 5.03% after tax for someone in the 30% bracket.
Premature withdrawal usually costs 0.5% to 1% off the applicable rate, and is not modelled. A deposit you may need to break early is worth laddering instead.
Deposit insurance covers ₹5,00,000 per depositor per bank. Amounts above that in a single bank carry the bank's own credit risk, which no rate comparison captures.
Only a five-year tax-saving deposit qualifies for Section 80C, and this calculator applies no such benefit.

Frequently asked questions

Common questions about the fixed deposit calculator and the assumptions behind it.

Next useful checks

Move from this result to the next decision without hunting through the full calculator list.

PPF CalculatorCompare tax-free small-savings compounding.Recurring Deposit CalculatorModel smaller monthly deposits instead of lump sums.

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Disclaimer

This calculator is provided for general information and planning only. It is not investment, tax or legal advice, and it does not take your personal circumstances into account. Outputs are estimates based on the assumptions stated on this page, exclude taxes and charges unless said otherwise, and market-linked returns are not guaranteed — the value of investments can fall as well as rise. Lending terms, rates and eligibility are decided by the lender. For advice on your own situation, speak to a qualified professional, several of whom you can consult on Finvestalk.