FD Calculator

A fixed deposit is a loan you make to a bank for a fixed term at a fixed rate. It is the most widely held financial product in India, and the maturity figure it produces is more interesting than the simplicity suggests.

Quarterly compounding is the default

Indian banks compound cumulative fixed deposits quarterly, crediting interest to the deposit every three months so that the next quarter earns on a slightly larger balance.

A = P × (1 + r ÷ 4)^(4 × t)

The frequency matters more than people expect. On ₹1,00,000 at 7% for five years:

Quarterly compounding is worth ₹1,223 more than annual over five years on a single lakh, and ₹6,478 more than simple interest. The advertised 7% is the nominal rate; 7.186% is what you actually earn, and that is the figure to compare against other products.

Cumulative against non-cumulative

A cumulative deposit reinvests the interest, so you get one payment at maturity. This is the version the compounding formula describes.

A non-cumulative deposit pays interest out monthly, quarterly or annually. Nothing compounds, because nothing is left in. The same 7% deposit of ₹5,00,000 pays roughly ₹2,917 a month and returns exactly ₹5,00,000 at the end.

Neither is better. Cumulative suits money you do not need until maturity. Non-cumulative suits retirees living on the income, which is why senior citizen schemes are usually structured that way. Note that monthly payout options are often quoted at a slightly discounted rate to compensate the bank for paying early.

The tax, which is where most of the difference goes

FD interest is taxed as income from other sources at your full slab rate. There is no special treatment, no indexation and no long-term concession.

At 30%, a 7% deposit returns 4.9%. If inflation is running at 5%, the deposit is losing purchasing power while appearing to grow — which is the honest case against holding long-term wealth in fixed deposits, and it has nothing to do with the safety of the bank.

Two further points catch people out:

Interest is taxed as it accrues, not when it is paid. On a five-year cumulative deposit the bank credits interest quarterly and it is taxable in the year credited, even though you receive nothing until maturity. Declaring the whole amount in the final year is a common and avoidable error, and it can push a single year into a higher slab.

TDS is not the tax. The bank deducts 10% TDS once interest crosses ₹50,000 in a financial year, ₹1,00,000 for senior citizens. That is a payment on account. If you are in the 30% bracket you owe the remaining 20% yourself; if your total income is below the taxable limit you can file Form 15G or 15H to stop the deduction, but filing it when you are actually liable is a false declaration.

Breaking a deposit early

Premature withdrawal is usually allowed and always costs. The bank applies the rate that would have been offered for the period the deposit actually ran, then deducts a penalty of typically 0.5% to 1%.

A ₹5,00,000 deposit booked for five years at 7% and broken after two years does not earn 7% for two years. It earns the two-year card rate — say 6.5% — minus a 1% penalty, so 5.5%, applied to the whole period retrospectively. The interest already credited at 7% is clawed back.

Some banks offer a no-penalty variant at a slightly lower headline rate, and a sweep-in account, which converts surplus balance into deposits automatically and breaks them in units when you need cash, avoids breaking the whole deposit for a small shortfall.

Laddering

Rather than one five-year deposit, split the money into five deposits maturing one year apart. Each year one matures and is reinvested for five years.

After the ladder is established every deposit earns the five-year rate, which is usually the highest on the card, while one fifth of the money becomes available annually without any penalty. It removes the choice between liquidity and rate, at the cost of a little administration.

Laddering also removes the reinvestment risk of putting everything in at one moment. If you place ₹25 lakh in a single deposit when rates are at a cyclical low, that rate is locked for five years; a ladder averages across the cycle in the same way a SIP averages a purchase price.

Safety, and the ₹5 lakh limit

Deposit insurance under the DICGC covers ₹5,00,000 per depositor per bank, and that figure includes accrued interest, not just principal. It is per bank, not per branch or per account, so five accounts at one bank share one limit.

For amounts above that, splitting across banks is the only way to stay fully covered. Different ownership patterns — sole, joint, and a joint account with the names in a different order — are treated as different depositors and get separate cover, which is a legitimate way to increase protection at one bank.

Small finance banks and co-operative banks often advertise 1% to 2% above the large banks. The insurance is identical, so up to ₹5 lakh the extra rate is genuinely free. Above it, you are taking credit risk for the premium, and co-operative bank failures in India have been frequent enough that this is not a theoretical concern.

Where an FD is the right answer, and where it is not

A fixed deposit is very good at one job and poor at another, and most disappointment with it comes from using it for the second.

It is the right instrument for money with a date. A school fee due in eighteen months, a down payment in three years, an emergency fund that must be intact whatever the market does. For these, the guaranteed nominal amount is the entire point and a 4.9% post-tax return is an acceptable price for certainty.

It is a poor instrument for long-term wealth. Over twenty years, post-tax returns below inflation compound into a real loss. Someone who kept ₹20 lakh in rolling fixed deposits from 2005 has more rupees and less purchasing power, and the safety of the deposit was never in question. Risk is not only the chance of losing rupees; it is also the certainty of losing value slowly.

Alternatives worth comparing before booking. An arbitrage fund is taxed as equity and often nets more at similar risk for a one-year horizon. A target maturity debt fund gives a predictable return to a fixed date with daily liquidity. Small savings schemes — NSC, KVP, the Senior Citizen Savings Scheme — frequently pay above bank card rates with a sovereign guarantee rather than a ₹5 lakh insurance limit.

Compare on post-tax return over your actual horizon, not on the number on the poster.

What this calculator assumes

• Quarterly compounding by default, matching standard Indian bank practice; other frequencies are selectable.
• The rate is constant for the whole term, which is true of a booked deposit but not of one you intend to renew.
• Figures are before tax. Apply your slab rate to the interest to see what you keep.
• No premature withdrawal, penalty or partial withdrawal is modelled.
• Senior citizen rates, typically 0.5% higher, are not applied automatically — enter the rate your bank actually offers you.