FD Calculator
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How it is calculated
Maturity = P × (1 + r ÷ 4)^(4 × t), where P is the principal, r is the annual interest rate (as a decimal) and t is the tenure in years, assuming the common quarterly-compounding basis used by most banks. The interest earned is the maturity amount minus the principal. FD interest is taxable as 'income from other sources', and banks deduct TDS above the threshold.
Interest is taxed as it accrues, not when you receive it
Fixed deposit interest is taxable in the year it accrues, not the year the deposit matures, and this is the single most common source of unexpected demands on FD income. On a five-year deposit that pays everything at maturity, the interest still has to be declared each year as it accrues, and the bank reports it that way. Taxpayers who wait for the maturity year and declare the whole amount then find that the earlier years show income they did not report, while the maturity year shows income the department does not expect. The correct approach is to take the accrued figure each year from the bank's interest certificate or from the Annual Information Statement and include it, adding the corresponding TDS credit. Doing it consistently is straightforward; switching between the accrual and receipt approaches midway is what creates mismatches that are tedious to explain.
TDS is not the whole tax
Banks deduct tax at source on interest once it crosses a threshold for the year across your accounts with that bank, and the rate at which they deduct is fixed rather than matched to your slab. That produces a gap in both directions. If you are in the thirty per cent bracket, the deduction covers only part of what you owe and the balance has to be paid as advance tax or self-assessment tax — discovering that at filing is a common and avoidable surprise. If your total income is below the taxable threshold, tax is being deducted that you will have to reclaim as a refund. Form 121 — which replaced Forms 15G and 15H from 1 April 2026 and covers residents of any age — prevents deduction where income is genuinely below the limit, but it must be filed at the start of the financial year and separately at each bank branch, since the declaration operates branch by branch.
Compounding frequency changes the effective return
Two deposits quoting the same annual rate can pay different amounts depending on how often interest is compounded. Most bank fixed deposits compound quarterly, so the effective yield is slightly above the nominal rate; deposits that pay interest out monthly or quarterly rather than reinvesting it produce a lower effective return, because there is nothing left in the account to compound. That makes the choice between a cumulative deposit and a payout deposit a real one rather than a formality: cumulative suits accumulation, payout suits someone who needs the income. When comparing offers across banks, compare the annualised yield rather than the headline rate, and check the compounding basis stated in the term sheet. On a long deposit the difference between quarterly and annual compounding is small in any single year and meaningful over five.
Premature withdrawal costs more than the days you lose
Breaking a deposit early does not simply mean losing the remaining term's interest. The bank recalculates the whole deposit at the rate applicable to the period it actually ran, not at the rate you were contracted for, and then applies a penalty on top — commonly a reduction of half to one percentage point. So a five-year deposit broken in year two earns the two-year rate less the penalty, applied retrospectively to the entire period. That is why an FD is a poor place for money that might be needed at short notice, and why splitting a large sum across several smaller deposits is usually better than one large one: you break only what you need. A loan or overdraft against the deposit is the alternative worth considering, since it preserves the contracted rate and is often cheaper than the break cost.
Where an FD genuinely fits
A fixed deposit does one thing well: it holds capital with high certainty and predictable, if modest, returns, backed for a limited amount per depositor per bank by deposit insurance. That makes it appropriate for an emergency reserve, for money earmarked for a purpose within the next couple of years, and for anyone whose priority is that the amount does not fall. It fits poorly as a long-horizon growth instrument, because the return is fully taxable at slab rates while inflation runs against it — the after-tax real return over long periods is frequently close to nothing for someone in a higher bracket. For long-term goals, equity and instruments with better tax treatment generally do more work. Tax-saving five-year deposits qualify under section 80C but only under the old regime, and their interest remains fully taxable.
Splitting deposits, and what insurance actually covers
Deposit insurance covers a limited amount per depositor per bank, and it aggregates across all accounts you hold at that bank in the same capacity — current, savings and fixed together — rather than applying separately to each deposit. Splitting a large sum into several deposits at the same bank therefore does nothing for insurance purposes. Spreading across different banks does. What splitting within a bank does achieve is liquidity: with several smaller deposits you can break only the one you need rather than the whole amount, preserving the contracted rate on the rest. A laddered structure, with deposits maturing at staggered intervals, combines both benefits and gives regular access without penalty. For substantial sums it is also worth checking whether accounts held in different capacities, such as individually and jointly, are treated separately for insurance.
Senior citizens, and small savings alternatives
Banks generally offer senior citizens a higher rate, commonly around half a percentage point above the standard card rate, and the threshold below which no tax is deducted at source on interest is also higher for them under section 80TTB, which covers deposit interest rather than only savings account interest. Beyond bank deposits, the small savings schemes are worth comparing rather than assuming an FD is the default: the Senior Citizens Savings Scheme offers a quarterly-paid rate that has often exceeded bank deposits, and the Post Office Monthly Income Scheme suits someone who needs regular income. Each has its own limits, tenure and premature exit rules. The comparison should be made on the after-tax return for your bracket, since interest from all of these is taxable, and on when you actually need the money rather than on the headline rate alone.
Frequently asked questions
Do I declare FD interest every year or at maturity?
Every year, as it accrues — even on a cumulative deposit that pays everything at the end. The bank reports it that way, so declaring the whole amount in the maturity year creates mismatches in the earlier years. Take the accrued figure from the bank's certificate or your AIS each year.
Does breaking an FD only cost me the remaining interest?
No. The bank recomputes the whole deposit at the rate applicable to the period it actually ran, then applies a penalty on top — so a five-year deposit broken in year two earns the two-year rate less the penalty, retrospectively. A loan against the deposit often costs less than breaking it.
How is FD interest compounded?
Most Indian banks compound FD interest quarterly. The maturity formula is P×(1+r/4)^(4t). A cumulative FD reinvests the interest; a non-cumulative FD pays it out periodically.
Is FD interest taxable?
Yes — FD interest is taxable at your slab rate as 'income from other sources'. Banks deduct TDS once interest in a year crosses the threshold (file Form 121 if your estimated tax for the year is nil — it replaced Forms 15G/15H from 1 April 2026).
Do senior citizens get a higher FD rate?
Yes — most banks offer senior citizens an additional interest rate (often around 0.5% more), and Section 80TTB gives a deduction on interest income up to a limit. Verify current rates with your bank.
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India Law Simplified is an AI-assisted tool, not a substitute for a licensed CA or advocate. Tax rules and limits change with each Finance Act — verify before relying on any figure.