How To Calculate FD Maturity

A fixed deposit is a lump sum placed with a bank for a fixed term at a fixed rate. The bank pays interest for the whole tenure, and unless you choose a payout option the interest is reinvested so the deposit compounds.

The headline rate the bank quotes is a nominal annual rate. It is not the rate you actually earn, because interest is credited more than once a year and then earns interest itself.

Compounding frequency is the number of times interest is added to the balance each year. Indian banks most commonly compound fixed deposits quarterly, so there are four compounding periods a year, though monthly, half-yearly and annual options exist.

The maturity value formula is the principal multiplied by one plus the periodic rate raised to the number of periods. The periodic rate is the annual rate divided by the number of compounding periods, and the number of periods is the frequency times the tenure in years.

Because the exponent counts compounding periods rather than years, a quarterly deposit at seven percent for five years is really twenty periods at one point seven five percent each, not five periods at seven percent.

The interest earned is simply the maturity value minus the principal. It is the figure most depositors care about, and it grows faster than linearly because each interest credit is itself earning interest.

The effective annual yield converts the compounding benefit into a single annual number. It is one plus the periodic rate raised to the frequency, minus one, and it is always at least the quoted rate whenever compounding happens more than once a year.

The gap between the quoted rate and the effective yield widens with both the rate and the frequency. At seven percent the gap is small, but at higher rates and monthly compounding the difference becomes worth checking.

Compounding more often always produces a larger maturity value for the same nominal rate. Monthly compounding beats quarterly, which beats half-yearly, which beats annual, and the differences are small but real over long tenures.

A cumulative deposit reinvests the interest and pays a lump sum at maturity, which is what this calculator models. A non-cumulative deposit pays the interest out periodically instead, so the principal does not grow.

Tax on fixed deposit interest is another reason the headline rate is not the return you keep. Interest is taxed at your slab rate, and tax is deducted at source once interest crosses the threshold in a financial year, so the post-tax yield is lower than the effective yield shown here.

Comparing a fixed deposit with a recurring deposit is a useful sanity check. A recurring deposit takes monthly instalments, so each instalment earns for less time than a lump sum and the maturity value is lower for the same total outlay.

Senior citizens are often offered a higher rate, which this calculator handles simply by letting you enter that rate. Enter the rate your bank actually quotes for your category rather than the headline figure.

The calculator models the figures you enter and nothing more. It does not know the bank's day-count convention, the exact rounding of each interest credit or any tax deducted, so treat the output as an estimate and confirm the maturity value on your deposit advice.