What a fixed deposit gives you
You place a sum with a bank for a fixed term at a fixed rate. The rate does not change for the duration, whatever happens to interest rates elsewhere. At the end you get the principal and the interest.
There is no market risk. Deposits are covered by DICGC insurance up to ₹5 lakh per depositor per bank, covering principal and interest together. For money that must be there on a specific date, this certainty is the product.
Quarterly compounding, not annual
Most online explanations compound an FD annually. Indian banks do not. A cumulative fixed deposit compounds quarterly, and the difference is not trivial over a long tenure.
A = P × (1 + r/4)^(4t)
₹1,00,000 at 7% for five years compounds as 1,00,000 × (1.0175)^20, which is about ₹1,41,478. Compounded annually the same deposit would reach ₹1,40,255 — roughly ₹1,200 less. This calculator uses the quarterly convention.
Note that this applies to a cumulative FD, where interest is reinvested. A non-cumulative deposit pays interest out monthly or quarterly and the principal never grows, so the total received is lower.
Tax is the part that gets overlooked
FD interest is fully taxable at your income tax slab rate. It is added to your income under "income from other sources", and there is no concession for holding it longer.
The practical effect at the 30% slab: a 7% FD returns about 4.9% after tax. Against inflation of 5–6%, that is a real return at or below zero. The deposit is safe in nominal terms and quietly loses purchasing power in real terms.
The bank also deducts TDS at 10% once interest exceeds ₹40,000 in a financial year — ₹50,000 for senior citizens — and at 20% if PAN is not provided. TDS is not the final tax; you still pay the difference between it and your slab rate when you file.
If your total income is below the taxable limit, Form 15G (or 15H if you are a senior citizen) tells the bank not to deduct TDS at all.
How to use this calculator
- Enter the total investment — the amount you are depositing.
- Set the rate of interest your bank is offering for the tenure you want. Rates vary by bank and by term, and senior citizens typically receive an extra 0.25–0.50%.
- Set the time period.
The result is the gross maturity value. Subtract tax at your slab rate to see what you actually keep.
Breaking an FD early
Most banks allow premature withdrawal with two penalties applied together: the interest is recalculated at the rate applicable to the period the money actually stayed, and a penalty of around 0.5–1% is deducted on top. Break a five-year deposit after one year and you receive roughly the one-year rate, less the penalty.
A practical defence is laddering — several smaller deposits maturing at different times rather than one large one, so an unexpected need breaks only part of the total.