How Fixed Deposit Interest Is Calculated

A Fixed Deposit (FD) is a savings instrument where you deposit a lump sum with a bank for a fixed period at a guaranteed interest rate. Unlike savings accounts, the interest rate on an FD does not change during the tenure, making it predictable. Indian banks typically compound FD interest quarterly, which means interest earned in one quarter itself earns interest in the next.

FD Compound Interest Formula

For cumulative FDs (interest reinvested), the maturity amount is:

A = P × (1 + r/n)^(n × t)

Where P is the principal, r is the annual interest rate (decimal), n is the compounding frequency per year (4 for quarterly), and t is the tenure in years. For simple-interest FDs (tenure under 6 months), the formula becomes: A = P × (1 + r × t).

Worked Example

You deposit ₹1,00,000 in a bank FD at 7% per annum for 3 years with quarterly compounding.

Senior citizens (age 60+) receive an additional 0.50% interest from most banks, bringing the effective rate to 7.5% in this example — yielding ₹1,25,022 at maturity.