Fixed Deposit (FD) maturity is calculated using the compound interest formula. The compounding frequency significantly impacts the final amount — more frequent compounding yields higher returns. Most Indian banks compound FD interest quarterly.

How the calculation works

A = P × (1 + r/n)^(n × t)

Where:
A = Maturity Amount
P = Principal (Initial Deposit)
r = Annual Interest Rate (as decimal)
n = Compounding Frequency per Year
    Monthly = 12, Quarterly = 4, Half-Yearly = 2, Annually = 1
t = Time Period in Years

A quick example

Let us calculate FD returns for a typical investment:

Principal Amount:₹1,00,000

Annual Interest Rate:7%

Tenure:5 years

Compounding:Quarterly

Step by step

1.Quarterly rate = 7% ÷ 4 = 1.75% = 0.0175
2.Total compounding periods = 4 × 5 = 20 quarters
3.Apply the formula: A = 1,00,000 × (1 + 0.0175)^20
4.A = 1,00,000 × (1.0175)^20
5.A = 1,00,000 × 1.4148

So the answer is: Maturity Amount ≈ ₹1,41,480 | Total Interest ≈ ₹41,480 | Effective Annual Yield: 7.19%

Frequently Asked Questions

How is FD interest calculated?

FD interest is calculated using the formula: A = P(1 + r/n)^(nt), where P is principal, r is annual rate, n is compounding frequency, and t is tenure in years.

Which compounding frequency is best?

Monthly compounding gives the highest returns as interest is compounded more frequently. However, most banks use quarterly compounding for FDs.

What is the difference between cumulative and non-cumulative FD?

In cumulative FD, interest is compounded and paid at maturity. In non-cumulative FD, interest is paid out periodically (monthly, quarterly, etc.).

Are FDs tax-free?

FD interest is fully taxable as per your income tax slab. However, 5-year tax-saver FDs qualify for 80C deduction up to ₹1.5 lakh.

What is the minimum FD amount?

Most banks require a minimum of ₹1,000 for FD. Some banks offer FDs starting from ₹5,000 or ₹10,000 for special tenures.