How FD Maturity Is Calculated
A Fixed Deposit (FD) earns compound interest on a lump sum invested for a fixed tenure. The maturity value is:
A = P × (1 + r/n)n·t
where P is the deposit, r is the annual interest rate, n is the number of times interest compounds per year (banks usually use quarterly), and t is the tenure in years.
Why Compounding Frequency Matters
The more often interest compounds, the more you earn for the same rate. Quarterly compounding (the bank standard) earns more than yearly, and monthly earns slightly more still. Try switching the frequency above to compare.
FD Interest and Tax
- FD interest is taxable as per your income slab.
- Banks deduct TDS if yearly interest exceeds ₹40,000 (₹50,000 for senior citizens).
- A 5-year tax-saving FD qualifies for 80C deduction under the old regime.
Frequently Asked Questions
Is an FD safe?
Bank FDs are low-risk, and deposits up to ₹5 lakh per bank are insured by DICGC.
Can I break an FD early?
Yes, but premature withdrawal usually attracts a small penalty and a slightly lower interest rate.