Understanding Fixed Deposits (FD)
A Fixed Deposit (FD) is one of the safest investment instruments offered by banks. You deposit a lump sum amount for a fixed tenure at a predetermined interest rate, offering guaranteed returns. Our calculator helps you project exactly how much your money will grow over time, accounting for different compounding frequencies.
How is FD Maturity Calculated?
The maturity amount of a Fixed Deposit is calculated using the compound interest formula:
- A: Final Maturity Amount.
- P: Principal Investment.
- r: Annual interest rate (decimal).
- n: Number of times interest is compounded per year (e.g., 4 for Quarterly).
- t: Time period in years.
Example Calculation
Suppose you deposit ₹1,00,000 for 3 years at an interest rate of 7.5% compounded quarterly (n = 4).
- P = 1,00,000
- r = 7.5 / 100 = 0.075
- n = 4
- t = 3
Using the formula, your maturity amount will be approximately ₹1,24,971. You will earn around ₹24,971 purely in interest.
Frequently Asked Questions
How does compounding frequency affect my FD?
The more frequently your interest is compounded, the more money you make. Most major banks compound interest "Quarterly" (every 3 months). This means the interest earned in the first quarter is added to your principal, and in the next quarter, you earn interest on that new, larger principal amount.
Is FD interest taxable?
Yes, the interest earned on Fixed Deposits is fully taxable according to your income tax slab. If your interest income exceeds ₹40,000 in a financial year (₹50,000 for senior citizens), the bank will deduct a 10% TDS (Tax Deducted at Source) before paying out your maturity amount.