Indian banks use two methods to calculate FD interest. For tenures under 6 months, simple interest is applied: Interest = P × R × T / 100. For tenures of 6 months and above, most banks compound the interest quarterly: Maturity = P × (1 + R/400)^(4×T). This is why comparing two FDs purely by advertised interest rate can be misleading — a 7% FD compounded quarterly will always yield more than a 7% FD compounded annually. This calculator automatically handles both methods based on your selected compounding frequency.
FD interest is added to your total income and taxed at your applicable income tax slab rate. For someone in the 30% slab, a 7% FD earns an effective post-tax return of just 4.9% — barely above inflation. Banks also deduct TDS at 10% if your annual FD interest exceeds ₹40,000 (₹50,000 for senior citizens). If you're in a lower tax bracket, submit Form 15G (below 60 years) or Form 15H (senior citizens) to your bank to prevent TDS deduction. This calculator shows your post-tax maturity value for complete clarity.
Despite their tax inefficiency, FDs serve a critical role: they are the right instrument for your emergency fund (3–6 months of expenses), short-term goals within 1–2 years where you cannot afford market volatility, and as a capital preservation vehicle for risk-averse retirees. The mistake is using FDs for long-term wealth creation goals like retirement or children's education, where equity SIPs historically outperform over 7+ year horizons. The right portfolio uses both: FDs for stability and liquidity, SIPs for long-term growth.