Introduction
-
A fixed deposit (FD) is an investment option offered by banks and financial institutions.
-
It is a safe and secure way to grow your savings as it offers a higher rate of interest than a savings account.
-
By investing in an FD, you can earn a guaranteed return on your money over a fixed period of time.
-
Unlike a savings account, where you can withdraw your money at any time, an FD requires you to keep your money invested for a specific period of time, called the lock-in period.
Most FD calculators online give you the simple interest answer. Your bank gives you the compound interest amount. They're not the same — and the gap grows significantly with tenure and amount.
On a ₹5 lakh FD for 5 years at 7%, the difference is ₹17,000 more in your pocket with quarterly compounding vs simple interest. This calculator uses the correct formula.
How the FD Calculator Works
Indian bank fixed deposits use compound interest, compounded quarterly for most tenure types. The formula:
M = P × (1 + r/n)^(n × t)
Where:
- M = Maturity amount (₹)
- P = Principal — the amount you deposit (₹)
- r = Annual interest rate as a decimal (7% → 0.07)
- n = Compounding frequency per year (most Indian banks compound quarterly → n = 4)
- t = Tenure in years
Example — ₹1,00,000 for 3 years at 7% p.a., compounded quarterly
- P = ₹1,00,000 · r = 0.07 · n = 4 · t = 3
- M = 1,00,000 × (1 + 0.07/4)^(4 × 3)
- M = 1,00,000 × (1.0175)^12
- M ≈ ₹1,23,144
Interest earned = ₹23,144
Compare with simple interest: 1,00,000 × 7% × 3 = ₹21,000 interest. Compounding earns you ₹2,144 more on ₹1 lakh alone — at ₹10 lakh, that's ₹21,440 extra you'd have missed with the wrong formula.
Compounding Frequency by Tenure
| FD Tenure | Typical Compounding | Notes |
|---|---|---|
| Under 6 months | At maturity (simple) | Short FDs use simple interest |
| 6 months – 1 year | Quarterly or half-yearly | Check your bank's schedule |
| Above 1 year | Quarterly | SBI, HDFC, ICICI, Axis — all quarterly |
| Tax-saving FD (5-year lock-in) | Quarterly | Section 80C benefit; old regime only |
| Senior citizen FDs | Quarterly | Usually 0.25–0.50% higher rate |
When in doubt, use n = 4 (quarterly) — it applies to the vast majority of retail FDs at Indian banks.
TDS on FD Interest — What Gets Deducted
FD interest is fully taxable as "Income from Other Sources" at your applicable income tax slab rate. It is not a capital gain and does not get any concessional rate.
When the bank deducts TDS:
- Your total FD interest from that bank exceeds ₹40,000/year (₹50,000 for senior citizens aged 60+)
- TDS rate: 10% if your PAN is on record; 20% if it's not
- TDS is deducted at the time of credit (quarterly or at maturity depending on your FD type)
What you still owe: TDS is not your final tax. If you're in the 30% slab and the bank deducted only 10%, you owe the remaining 20% when you file your ITR. FD interest must be declared every year — even for multi-year FDs where interest is credited annually, not just at maturity.
File Form 15G (under 60, no tax liability) or Form 15H (senior citizens) with your bank at the start of each financial year to prevent TDS deduction if your total income is below the taxable threshold.
FD vs Other Options at the Same Risk Level
| Instrument | Expected Return | Liquidity | Tax Treatment |
|---|---|---|---|
| Bank FD (1–3 year) | 6.5–7.5% p.a. | Premature withdrawal (with penalty) | Slab rate |
| Post Office TD | 6.9–7.5% p.a. | Limited | Slab rate |
| Debt Mutual Fund | 6–8% p.a. (variable) | T+1 redemption | Slab rate (post-2023) |
| RBI Floating Rate Bond | 8.05% p.a. (reset half-yearly) | No premature exit | Slab rate |
| Liquid Fund | 6–7% p.a. (variable) | Same-day redemption | Slab rate |
For business owners with surplus cash sitting idle between GST payment cycles, a liquid fund often beats an FD on both return and flexibility — you can redeem in 24 hours without a penalty that a premature FD break would trigger.
Want to know how your FD interest affects your total tax this year? Use our Tax Regime Calculator to see your full picture →