How a bank FD actually compounds
An FD is a loan from the depositor to the bank for a fixed term at a fixed rate. The interest is added to the balance at the compounding frequency the bank sets at account opening, and the whole sum pays out at maturity. Most Indian banks compound quarterly. A monthly-payout FD is different: it pays simple interest each month and does not compound.
The compounding choice is where the arithmetic surprises a first-time depositor. The nominal rate on the FD certificate is what the bank advertises; the effective annual yield is what the money actually earns. Moving from yearly to monthly compounding on a 7 per cent, five-year deposit lifts the effective yield from 7.00 per cent to 7.23 per cent. It is not a large jump on one FD, and the choice is set by the bank, not the depositor; the page shows the difference so the final figure is explained.
Worked example a reader can check
Place ₹5,00,000 at 7 per cent for 60 months on quarterly compounding. The quarterly rate is 7 divided by 4, or 1.75 per cent. The number of quarters is 20. Maturity equals the deposit times (1 plus 0.0175) raised to the twentieth power.
| Step | Value |
|---|---|
| Deposit | ₹5,00,000 |
| Quarterly rate | 1.75 per cent |
| Quarters in 60 months | 20 |
| Growth factor | about 1.4148 |
| Maturity | about ₹7,07,389 |
| Interest earned | about ₹2,07,389 |
| Effective annual yield | about 7.19 per cent |
Switching the same deposit to monthly compounding raises the maturity to about ₹7,08,813, an uplift of roughly ₹1,424. Simple interest payout, which does not compound at all, gives a maturity of ₹6,75,000.
TDS on FD interest for FY 2026-27
Bank interest TDS is covered under the applicable provisions of the Income-tax Act 2025 (corresponding to the earlier section 194A). The thresholds applicable from 1 April 2025 were carried into the new Act: ₹50,000 a year per bank for a general resident, ₹1,00,000 a year per bank for a senior citizen aged 60 or above. The rate above the threshold is 10 per cent where the bank has PAN on record; it rises to 20 per cent where PAN is not provided.
Cover is per bank, not per branch or per account. Splitting one large deposit across two banks keeps each branch's annual interest under the threshold, but it also fragments the DICGC cover, so the trade-off is not trivial.
Form 15G (under 60) and Form 15H (senior citizen) let a depositor declare that total income is below the tax threshold, and the bank then does not deduct TDS. Secondary coverage reports that Forms 15G and 15H merge into Form 121 for tax year 2026-27 under the new Income-tax Rules 2026, so confirm on the Income Tax Department portal before filing. Interest, when the amount is high enough, is taxed at the depositor's slab rate at the return stage.
DICGC deposit insurance: the ₹5 lakh cover
DICGC cover sits at ₹5,00,000 per depositor per bank, principal plus interest combined. The cover has been at this level since 4 February 2020 and is unchanged as of November 2026. The Department of Financial Services signalled a review in February 2025 and the Government said in July 2025 that no proposal was under consideration; the figure reported here is correct but is worth re-checking at the time of opening a large deposit.
A deposit of ₹5 lakh and a deposit of ₹50 lakh in the same bank receive the same ₹5 lakh of DICGC cover. Splitting across banks raises the covered share. A trust FD and a sole-holder FD at the same bank are usually seen as different depositors and so get separate cover; joint FDs follow a specific ordering rule that the bank will explain.
How each input moves the answer
The deposit amount is linear: twice the deposit, twice the maturity at the same rate and tenure.
The rate is where most of the final figure comes from. At a five-year tenure, a shift from 7 to 7.5 per cent lifts the quarterly maturity by about 2.5 per cent, roughly ₹17,585 on a ₹5,00,000 deposit. A shift from 7 to 8 per cent adds about ₹35,585.
Tenure compounds the earlier two. The same 7 per cent, quarterly compounded, grows ₹5,00,000 to ₹7,07,389 in 5 years but to ₹10,00,799 in 10 years. Compounding cannot work without time.
What this calculator leaves out
- Premature withdrawal, where the bank applies a lower rate for the period the deposit actually ran, plus a penalty of 0.5 to 1 per cent. The page shows the full-tenure figure.
- Sweep deposits linked to a savings account, which slice the balance into FD-sized units and do not sit on one simple rate.
- Tax-saving FDs under the applicable provisions of the Income-tax Act 2025 (formerly section 80C). These carry a five-year lock-in and run under the old regime only; principal, not interest, is the deductible leg.
- Senior citizen premium rates, which some banks offer. The calculator uses one rate; put the senior rate if your bank publishes one.
- Cumulative versus non-cumulative payout timing: both arrive at the same maturity on compounding terms, but a non-cumulative FD pays interest periodically, so reinvestment choice sits with you.
Open questions on the 2026-27 numbers
Two figures in this topic are reported rather than fully verified. The Form 121 consolidation of Forms 15G and 15H for tax year 2026-27 is covered by trade press, but the Income Tax Department portal did not resolve on the most recent fetch; treat it as a scheduled change and confirm at the counter before signing the form. The DICGC review flagged by the Department of Financial Services in February 2025 has had no public update since July 2025 and the ₹5 lakh cover remains current; a new figure would be worth re-checking on a deposit of twenty lakh or more.
The arithmetic on this page does not depend on either of those items; both are listed so a reader is not surprised at the branch.
Frequently asked questions
What is the formula behind a fixed deposit's maturity value?
Maturity equals the principal multiplied by (1 plus rate divided by n) raised to the (n times years) power, where n is the number of compounding periods a year. For a simple-interest FD there is no compounding; interest equals principal times rate times years.
What compounding frequency do most Indian banks use?
Quarterly compounding is the default for cumulative FDs at most Indian banks. Some small finance banks and some scheme variants compound monthly. A monthly-payout FD does not compound: it pays simple interest every month.
What is the TDS threshold on FD interest?
It is ₹50,000 a year per bank for a general resident and ₹1,00,000 a year per bank for a senior citizen aged 60 or above, from 1 April 2025. The deduction rate on interest above the threshold is 10 per cent where PAN is on record, 20 per cent where not. Interest at the return stage is taxed at the slab rate.
Is the DICGC cover still ₹5 lakh?
Yes, as of November 2026. The ₹5,00,000 cover per depositor per bank, principal plus interest combined, has been in force since 4 February 2020. A review was signalled in February 2025 and the Government stated in July 2025 that no proposal was under consideration.
Does the calculator show post-tax maturity?
Not directly. It shows the pre-tax maturity and prints an estimate of the TDS the bank would deduct across the tenure. The post-tax figure depends on the depositor's slab rate, which the return workings out separately. A qualified chartered accountant can firm up the final position.
What are Form 15G and Form 15H?
They are self-declarations that total income is below the tax threshold, which stops the bank from deducting TDS on FD interest. Form 15G is for a depositor under 60; Form 15H is for a senior citizen. Secondary coverage reports they merge into Form 121 for tax year 2026-27; confirm the form in use at the bank counter.
Why does monthly compounding give a slightly higher maturity than quarterly?
Each compounding adds that period's interest to the balance, so the next period's interest is slightly larger. Monthly compounding does this twelve times a year; quarterly does it four times. On the default inputs the gap is about ₹1,424 over five years on a ₹5,00,000 deposit at 7 per cent.
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