Bank FD Interest Calculation: How Quarterly Compounding Multiplies Wealth
Fixed Deposits (FDs) are the bedrock of household savings in India. But how do banks calculate your exact maturity amount when interest is compounded every quarter?
The Mathematics of RBI Quarterly Compounding
In India, commercial banks calculate interest on cumulative FDs compounded every calendar quarter (4 times a year).
The maturity formula is: A = P × (1 + r / 400)^(4 × n)
Because interest is credited and reinvested every 3 months, an advertised interest rate of 7.25% gives an effective annualized yield of ~7.45%.
Key Practical Takeaways:
Effective Annual Yield on Bank FDs with Quarterly Compounding
| Stated Interest Rate | Compounding Frequency | Effective Annual Yield | Maturity on ₹10 Lakh (5 Years) |
|---|---|---|---|
| 6.50% p.a. | Quarterly | 6.66% yield | ₹13,80,420 |
| 7.00% p.a. | Quarterly | 7.19% yield | ₹14,14,778 |
| 7.50% p.a. | Quarterly | 7.71% yield | ₹14,49,948 |
| 8.00% p.a. (Senior) | Quarterly | 8.24% yield | ₹14,85,947 |
Common Questions on This Topic
What is the TDS threshold on Bank Fixed Deposits?
Banks deduct 10% TDS if annual interest income across all branch accounts exceeds ₹40,000 for regular individuals or ₹50,000 for senior citizens.
Interactive Calculators for This Guide
FD Calculator (Fixed Deposit)
Calculate maturity amount and quarterly compound interest on Bank Fixed Deposits.
RD Calculator (Recurring Deposit)
Calculate maturity proceeds and interest on monthly Recurring Deposits.
Compound Interest Calculator
Calculate compound interest with annual, semi-annual, quarterly, or monthly compounding.