How FD Interest is Calculated in India
Indian banks calculate FD interest using quarterly compounding. This means interest is calculated every quarter and added to the principal, which then earns interest in subsequent quarters. This compound interest effect gives you slightly higher returns than simple interest calculation.
For example, ₹1 lakh at 7% for 1 year with quarterly compounding gives ₹1,07,186 (effective yield 7.186%), compared to ₹1,07,000 with simple interest.
Choosing the Right FD
When selecting an FD, compare rates across banks using this calculator. Consider: 1) Regular vs cumulative FD — cumulative gives higher returns due to compounding. 2) Tenure — longer tenure may not always mean higher rates. 3) Tax impact — post-tax returns matter more than pre-tax rates. 4) Bank safety — deposits up to ₹5 lakhs are insured by DICGC per bank.