How FD interest is worked out
Most Indian banks compound fixed deposit interest quarterly:
where P is the deposit, r the yearly rate, n the number of times interest is compounded a year and t the years.
Example
₹1,00,000 at 7% for 3 years, compounded quarterly, matures at about ₹1,23,144 — an effective yield of about 7.19% a year.
Good to know
- FD interest is taxable as income, and TDS may be deducted above the threshold.
- Rates differ by bank, tenure and for senior citizens.
- Breaking an FD early usually reduces the rate.
- A loan against an FD can be cheaper than breaking it for a short-term need.