Project fixed deposits interest and maturity values. Indian FDs typically compound quarterly.
Deposited Principal
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Interest Accrued
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FD Maturity Value
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Invested Principal
₹0(0%)
Interest Earned
₹0(0%)
What is a Fixed Deposit (FD)?
A Fixed Deposit is one of India's safest and most popular investment instruments. It allows you to deposit a lump sum with a bank or NBFC for a specific tenure at a predetermined, fixed interest rate. Returns are guaranteed regardless of market fluctuations.
How is FD Interest Calculated?
FD interest in India is typically compounded quarterly. The formula for maturity value is: M = P * (1 + (R/400))^(4*T). This quarterly compounding effect means your effective annual yield is slightly higher than the stated interest rate.
Taxation on Fixed Deposits
Interest earned on FDs is fully taxable based on your income tax slab. If the interest earned exceeds ₹40,000 in a financial year (₹50,000 for senior citizens), the bank will deduct a 10% TDS (Tax Deducted at Source). You can submit Form 15G or 15H to avoid TDS if your total income is below the taxable limit.
The Fixed Deposit (FD) is India's most trusted and widely used financial instrument. It offers guaranteed, risk-free returns immune to stock market volatility. This makes it the perfect vehicle for short-term goals, capital preservation, and emergency funds.
Understanding FD Compounding
While FD interest rates are quoted on a per-annum (p.a.) basis, the actual interest calculation in most Indian banks is compounded quarterly. This means the interest earned in the first quarter is added to your principal, and in the second quarter, you earn interest on that new, higher amount. This quarterly compounding effect means your "Effective Annualized Yield" is slightly higher than the stated interest rate.
Taxation & TDS (Tax Deducted at Source)
The biggest drawback of an FD is its tax inefficiency. The interest earned is added to your total income and taxed exactly according to your income tax slab. If you fall in the 30% bracket, a 7% FD yields an effective post-tax return of just 4.9%—often failing to beat inflation.
Furthermore, if your expected interest exceeds ₹40,000 in a financial year (₹50,000 for senior citizens), the bank will automatically deduct 10% TDS. If your total income is below the taxable threshold, you must submit Form 15G (or Form 15H for senior citizens) to the bank at the start of the financial year to prevent them from deducting TDS.
Frequently Asked Questions (FAQs)
FD interest is compounded quarterly (four times a year), meaning earned interest is added to your principal every three months.
Cumulative FDs reinvest interest to compound returns until maturity. Non-cumulative FDs pay out interest regularly (monthly or quarterly) for cash flow.
Yes, FD interest is completely taxable under 'Income from Other Sources' at your applicable income tax slab rates.
Banks deduct TDS at 10% if your annual interest income across deposits exceeds ₹40,000 (₹50,000 for senior citizens).
If your total taxable income is below the taxable threshold, submit Form 15G (Form 15H for senior citizens) to prevent TDS.
Banks typically levy a penalty of 0.5% to 1.0% on the interest rate for premature withdrawals.
A special 5-year lock-in fixed deposit that offers tax deductions up to ₹1.5 Lakhs under Section 80C. Premature withdrawals are not allowed.
Yes, most commercial banks offer senior citizens an additional interest rate markup of 0.50% to 0.75% p.a.
The maximum tenure allowed for a fixed deposit in Indian commercial banks is 10 years.
Yes, you can typically borrow up to 90% of your FD value as an overdraft or loan at an interest rate 1% to 2% higher than the FD rate.