How Fixed Deposit Returns Are Calculated in India

Summary

A fixed deposit (FD) locks your money at a guaranteed interest rate for a fixed tenure. Indian bank FD rates range from 3% (short-term) to 7.5% (1-2 year tenures) as of 2025-26. Interest is subject to TDS at 10% and is taxable at your slab rate. The calculator shows maturity value, post-tax returns, and real returns after inflation.

How it works

Interest calculation

Most banks use quarterly compounding for cumulative FDs:

Maturity value = P x (1 + r/4)^(4t)

Where P is principal, r is annual rate, and t is tenure in years.

For non-cumulative (payout) FDs, simple interest is paid monthly or quarterly:

Interest per period = P x r x period / 12

TDS rules

Banks deduct TDS (Tax Deducted at Source) on FD interest:

• 10% if annual interest exceeds Rs 40,000 (Rs 50,000 for senior citizens)
• 20% if PAN is not provided
• Submit Form 15G/15H if your total income is below the taxable limit to avoid TDS

TDS is only a pre-payment of tax. Your actual tax liability depends on your slab rate.

Senior citizen benefit

Senior citizens (60+) typically receive an additional 0.25-0.50% interest on FDs. They also have a higher TDS threshold (Rs 50,000) and can claim deduction under Section 80TTB up to Rs 50,000 on interest income.

Tax-saver FD

5-year tax-saver FDs qualify for Section 80C deduction (up to Rs 1.5 lakh) under the old regime. However, the interest is still fully taxable.

Worked example

Rs 5,00,000 FD at 7.25% for 3 years, quarterly compounding, 30% tax bracket

1. Maturity value: Rs 5,00,000 x (1 + 0.0725/4)^12 = Rs 6,19,833
2. Interest earned: Rs 1,19,833
3. Tax on interest (30% + 4% cess): Rs 1,19,833 x 31.2% = Rs 37,388
4. Post-tax interest: Rs 82,445
5. Post-tax return: Rs 5,82,445
6. Effective post-tax rate: approximately 5.08%
7. Real return (6% inflation): approximately -0.92%

The FD destroys purchasing power for a 30% bracket taxpayer.

Inputs explained

• Principal — amount to deposit
• Interest rate — the FD rate offered
• Tenure — lock-in period
• Compounding frequency — quarterly, monthly, or annual
• Tax bracket — for post-tax return calculation

Outputs explained

• Maturity value — total amount receivable at maturity (cumulative FD)
• Interest earned — total interest over the tenure
• TDS deducted — tax deducted at source each year
• Post-tax return — actual interest after full tax liability
• Real return — after adjusting for inflation

Assumptions & limitations

• FD rates vary by bank and tenure. The calculator uses the rate you provide; compare rates across banks before investing.
• Premature withdrawal incurs a penalty (typically 0.5-1% reduction in applicable rate).
• DICGC insurance covers up to Rs 5 lakh per depositor per bank. Split large deposits across banks for full coverage.
• Reinvestment risk: when the FD matures, prevailing rates may be lower.
• Does not model recurring deposits (RD), which involve monthly contributions.