How fixed deposit interest is calculated
Indian banks compound cumulative fixed deposits quarterly. The maturity amount is A = P × (1 + r ÷ 4)4t, where P is the deposit, r the annual rate and t the tenure in years. Deposits shorter than six months earn simple interest. For payout (non-cumulative) FDs, interest is paid out monthly or quarterly and the principal is returned at maturity; monthly payout is at a slightly discounted rate because the bank pays before the quarter completes.
Worked example
₹5,00,000 in a 5-year cumulative FD at 7%: A = 5,00,000 × (1.0175)20 = ₹7,07,389, interest ₹2,07,389, effective simple-interest yield 8.3% per annum. The same deposit as a quarterly payout FD pays ₹8,750 every quarter (₹35,000 a year) and returns ₹5,00,000 at the end. A senior citizen at 7.5% would get ₹7,24,974 on the cumulative option.
Senior citizen benefit
Most banks offer 0.25–0.75% extra to depositors aged 60 and above (the calculator uses 0.5%; change the rate if your bank differs). Senior citizens also enjoy a higher TDS threshold and a deduction of up to ₹50,000 on deposit interest under Section 80TTB in the old regime.
TDS on FD interest
- Section 194A: banks deduct 10% TDS (20% if PAN is not provided) when interest credited in a financial year exceeds ₹50,000 for general depositors and ₹1,00,000 for senior citizens (limits raised in Budget 2025; earlier ₹40,000 / ₹50,000).
- The threshold applies per bank, across all branches, and TDS is on accrued interest each year even for cumulative FDs.
- Submit Form 15G (below 60) or 15H (60+) at the start of the year if your total income is below the taxable limit to avoid TDS.
- TDS is not the final tax — interest is added to income and taxed at your slab; excess TDS can be claimed as refund.
Choosing between cumulative and payout
Cumulative FDs suit savers who do not need regular income and want compounding. Payout FDs suit retirees who want a monthly or quarterly cash flow. Laddering several FDs with different maturities gives both liquidity and better average rates.
Frequently Asked Questions
Is FD interest compounded monthly or quarterly?
Quarterly for almost all Indian banks. The rate quoted is nominal; the annualised yield is a little higher.
When is TDS deducted on FD?
When interest from one bank exceeds ₹50,000 in a financial year (₹1 lakh for senior citizens) from FY 2025-26. TDS is 10% with PAN.
Is FD interest tax-free for senior citizens?
No, but seniors can claim a deduction up to ₹50,000 under Section 80TTB in the old regime, and enjoy a higher TDS threshold.
What is the penalty for premature withdrawal?
Typically 0.5–1% lower rate than the applicable rate for the period the deposit actually ran. Some banks waive it for senior citizens or small amounts.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.