How FD interest is calculated: quarterly compounding explained

FD interest in India is usually compounded every quarter on a cumulative fixed deposit, and paid with the deposit at maturity. The formula is the compound interest formula with n = 4. This page shows a worked example, the effective yield, and the points that change what you actually take home.

The formula

Maturity = P × (1 + r ÷ n)^{n × t}

For quarterly compounding, n = 4. Your bank’s deposit terms say which frequency applies.

Worked example: ₹1 lakh at 7% for 5 years

Effective yield

Effective yield = (1 + 0.07 ÷ 4)⁴ − 1 = 7.19%. It turns any compounding into one yearly rate, so you can compare two banks fairly.

Cumulative or payout FD

• Cumulative: interest is reinvested and paid at maturity. The calculator shows this.
• Monthly or quarterly payout: interest is paid out as it is earned, so it does not compound. Your total is closer to the simple-interest figure.

Tax, TDS and safety

• Tax: interest is part of your income and taxed at your slab rate, even on a cumulative FD where you receive it later.
• TDS: banks deduct tax at source when interest crosses the yearly threshold. If your income is below the taxable limit, ask your bank about the declaration that stops TDS.
• Deposit insurance: the Deposit Insurance and Credit Guarantee Corporation (DICGC) covers up to ₹5 lakh per depositor in a bank, principal and interest together.
• Breaking early: most banks pay a lower rate and may charge a penalty. The calculator does not include this.

How to use the FD calculator

1. Enter the deposit and the rate your bank offers.
2. Enter the tenure in years and months, and choose how often interest compounds.
3. Read the maturity amount, the interest and the effective yield.

Saving a fixed amount every month instead? Use the RD calculator. Comparing with government-backed options? See post office scheme rates.