What is a fixed deposit?
A fixed deposit (FD) is a deposit with a bank or financial company for a fixed period at a fixed interest rate. You know at the start exactly what you’ll get at the end, which is why FDs are a favourite for money you can’t afford to put at risk.
In a cumulative FD, interest is added to your deposit and earns interest itself until maturity. In a non-cumulative FD, interest is paid out monthly, quarterly or yearly instead. This calculator shows a cumulative FD.
How to use this FD calculator
- Amount you deposit: the one-time amount.
- Interest rate: the yearly rate your bank offers. Senior citizens often get an extra 0.25 to 0.5%.
- Deposit period: how many years until maturity.
The FD formula
A = P × (1 + r ÷ 4)^(4 × t)
- P is the amount you deposit
- r is the yearly interest rate (7% = 0.07)
- t is the number of years
- Dividing by 4 reflects quarterly compounding
A worked example
Deposit ₹5 lakh for 5 years at 7% a year, compounded quarterly:
- Maturity value: ₹7,07,389
- Interest earned: ₹2,07,389
- Effective yearly yield: about 7.19%
Things to keep in mind
- Tax. FD interest is taxed at your income tax slab rate every year. If you’re in the 30% slab, a 7% FD earns about 4.9% after tax.
- Inflation. If prices rise 6% a year, a post-tax return of under 5% means your money buys a little less each year. The inflation calculator shows the effect.
- Breaking an FD early usually costs you a penalty on the interest rate.
- Insurance. The DICGC insures up to ₹5 lakh per depositor per bank. Spreading large amounts across banks keeps more of it covered.
FDs alongside mutual funds
FDs are great for money you need soon and want to keep safe, like an emergency fund or a near-term payment. For long-term goals, many people pair them with mutual funds, which can grow faster over time but go up and down along the way. Compare a one-time mutual fund investment with the lumpsum calculator, or see the government-backed alternative in the PPF calculator.
