How FD Interest Is Calculated: Rate, Tenure and Compounding

Is FD interest simple or compound?

The answer depends on the deposit's terms. ArthaSiddhi's FD calculator uses compound growth: interest remains in the modeled deposit and earns further interest. You can select monthly, quarterly, half-yearly or yearly compounding. Actual institution and product terms can differ; non-cumulative or payout deposits are not modeled by this calculator.

Yearly compounding is not a general simple-interest mode. With yearly compounding, earlier interest joins the balance for later years; simple interest is calculated only on the original principal. The calculator has no simple-interest mode.

An FD calculation connects four inputs

An FD maturity calculation starts with the principal, applies an annual rate according to the selected compounding frequency and repeats that process over the tenure. Interest earned is the maturity amount minus the original principal.

The calculation explains a contracted growth scenario. It does not select a deposit, compare institutions or supply a current bank rate.

The maturity formula and its terms

For the convention used here, maturity amount A = P × (1 + r ÷ n)^(n × t). P is principal, r is the annual rate written as a decimal, n is the number of compounding periods per year, and t is the tenure in years.

The interest earned is A minus P. The formula applies the same stated rate and frequency throughout the entered tenure; actual contractual values follow the institution's product terms and calculation method.

How the annual rate becomes a periodic rate

The calculator treats the entered percentage as a nominal annual rate: it divides that rate by the number of compounding periods per year—12 for monthly, 4 for quarterly, 2 for half-yearly or 1 for yearly. An illustrative 7% annual rate becomes about 0.5833% per month, 1.75% per quarter, 3.5% per half-year or 7% per year under this convention.

The number of periods changes with both frequency and tenure. Over three years there are 3 yearly, 6 half-yearly, 12 quarterly or 36 monthly compounding periods.

Worked example: ₹2 lakh for three years

Take a principal of ₹2,00,000, an illustrative annual rate of 7% and a three-year tenure. The rate is used only to explain the calculation and is not a current bank offer. Keeping principal, rate and tenure unchanged gives these results under the FD Calculator's supported conventions:

What the comparison shows

More frequent compounding adds calculated interest to the balance more often. That allows earlier interest additions to take part in later periods, so the displayed maturity amount rises across this controlled example.

The principal remains ₹2,00,000 in every row. Only the periodic convention changes, which means the difference appears in interest earned and therefore in maturity amount.

For the beginner overview of deposits and their terms, return to Fixed Deposit Explained. If a deposit is closed early, the original maturity may no longer apply.