FD Calculator

How Fixed Deposit Interest Is Calculated

Fixed deposits use compound interest to calculate your maturity amount. The formula is: A = P(1 + r/n)^(n*t), where P is the principal, r is the annual interest rate, n is the compounding frequency, and t is the tenure in years. The more frequently interest compounds, the higher your effective return.

Compounding Frequencies Explained

Banks offer different compounding options on FDs. Here's how they affect your returns:

• Monthly compounding — interest is added to principal every month, giving the highest effective yield
• Quarterly compounding — the most common option offered by Indian banks, interest compounds four times a year
• Half-yearly compounding — interest is added twice a year, common in post office term deposits
• Yearly compounding — interest compounds once a year, resulting in the lowest effective yield among all options

FD Tax Rules

Interest earned on fixed deposits is fully taxable under "Income from Other Sources" and added to your total income. Banks deduct TDS at 10% if your annual FD interest exceeds &rupee;40,000 (&rupee;50,000 for senior citizens). You can submit Form 15G (below 60 years) or Form 15H (senior citizens) to avoid TDS if your total income is below the basic exemption limit. Tax-saving FDs under Section 80C have a 5-year lock-in and offer deduction up to &rupee;1.5 lakh.

FD Laddering Strategy

FD laddering means spreading your investment across multiple FDs with different maturity dates instead of putting everything in one FD. For example, instead of a single &rupee;5 lakh FD for 5 years, create five FDs of &rupee;1 lakh each maturing in 1, 2, 3, 4, and 5 years. This gives you periodic liquidity, reduces reinvestment risk, and lets you take advantage of higher rates on longer tenures. As each FD matures, reinvest it for the longest tenure in your ladder.