Calculate the maturity value of a fixed deposit with quarterly compounding.
A fixed deposit pays a stated rate for a fixed term, with interest usually compounded quarterly in India. That compounding frequency matters more than people expect: the effective annual yield on a quarterly-compounded deposit is slightly higher than the stated rate, and the gap widens with the rate. A cumulative FD reinvests interest so you receive one sum at maturity; a non-cumulative FD pays out monthly or quarterly, which suits income needs but forgoes the compounding.
The part that most often surprises people is tax. FD interest is fully taxable at your slab rate, and it is taxable as it accrues each year rather than only when you receive it at maturity. Banks deduct TDS once interest crosses the applicable threshold, but TDS is not the final liability — if your slab rate is higher, the balance is still payable. This is why a headline FD rate and a headline debt-fund or equity return are not directly comparable: one is quoted pre-tax at slab rates, the others carry different treatment. Premature withdrawal also typically attracts a penalty of around 0.5 to 1 per cent off the applicable rate.
Because most bank FDs compound quarterly. Each quarter’s interest starts earning in the next, so the effective annual yield sits slightly above the nominal rate, and the difference grows as the rate rises.
No. Interest is taxable in the year it accrues, even on a cumulative deposit where you receive nothing until maturity. Reporting it annually avoids a large and unexpected liability in the maturity year.
No. TDS is deducted at a flat rate once interest crosses the threshold, but the interest is taxed at your slab rate. If your slab is higher than the TDS rate, the difference is still payable when you file.
Most banks apply a penalty, commonly around half to one per cent, and pay interest at the rate applicable to the period actually completed rather than the originally booked rate. Some tax-saving and special deposits cannot be broken at all.