How do banks calculate FD interest?

Most banks use quarterly compounding. Some may offer monthly or annual compounding.

Is FD interest taxable?

Yes, FD interest is fully taxable. TDS is deducted if interest exceeds ₹40,000 per year (₹50,000 for senior citizens).

Can I break an FD early?

Yes, but you'll typically get a lower interest rate (0.5-1% penalty) on premature withdrawal.

How to Calculate Fixed Deposit (FD) Returns

A Fixed Deposit (FD) is a financial instrument where you deposit a lump sum for a fixed tenure at a guaranteed interest rate. Understanding how FD interest is calculated helps you compare options.

FD Maturity Amount Formula (Compound Interest)

A = P × (1 + r/n)^(n×t)

Where:

A = Maturity amount
P = Principal (deposit amount)
r = Annual interest rate (decimal)
n = Compounding frequency per year (usually 4 for quarterly)
t = Tenure in years

Step-by-Step:

1
Note your FD details
Get principal amount, interest rate, tenure, and compounding frequency.
2
Convert rate to decimal
Divide the annual rate by 100.
3
Apply the formula
Most banks compound quarterly (n=4).
4
Calculate interest earned
Interest = Maturity Amount - Principal.

Worked Examples:

1 lakh FD for 5 years at 7%

Principal: ₹1,00,000Rate: 7%Tenure: 5 yearsCompounding: Quarterly

Result: ₹1,41,478 (Interest: ₹41,478)

A = 100000 × (1 + 0.07/4)^(4×5) = ₹1,41,478