Fixed Deposit Maturity
Maturity value under quarterly compounding — the Indian bank standard — the effective annual yield your advertised rate actually delivers, and the TDS the bank will quietly deduct along the way.
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§1The formula
An FD is compound interest with the frequency the bank chooses — and Indian banks almost universally compound quarterly:
With m = 4, each quarter's interest joins the principal and earns interest itself from the next quarter. That's why the maturity value beats the simple-interest number, and why the effective annual yield is a touch higher than the advertised rate.
The same deposit at simple interest would earn ₹1.75 lakh — quarterly compounding adds about ₹32,000 over five years without the bank raising the rate at all.
§2The gotchas
Quarterly compounding means a 7% FD actually yields about 7.19% a year. Banks advertise the nominal rate but some quote the "annualised yield" in marketing — when comparing FDs against each other or against debt funds, compare effective yields, not headline rates.
Break the FD early and most banks charge a 0.5–1% penalty — and they charge it on the applicable rate for the period you actually stayed, not your booked rate. A 5-year FD at 7% broken after one year might pay the 1-year card rate (say 6.5%) minus 1% — you get 5.5%, not 6%. Ladder several smaller FDs instead of one big one so an emergency breaks only a slice.
FD interest is taxed at your slab rate; the bank's 10% TDS is only a prepayment. In the 30% slab you owe the remaining 20% at filing time — budget for it. And if your total income is below the taxable limit, file Form 15G (15H for seniors) with the bank so no TDS is cut in the first place. Interest accrues — and is taxable — every year, even on cumulative FDs that pay out at maturity.
Deposit insurance covers ₹5 lakh per depositor per bank — principal plus interest, across all your accounts there. Parking ₹20 lakh in one bank means ₹15 lakh rides on that bank's health. Split large FDs across banks (or across family members' names) to keep every rupee inside the insured envelope, especially with small finance and cooperative banks offering the juiciest rates.
§3Related
Building the deposit monthly instead of in one shot? See the recurring deposit calculator. Keeping money in savings to dodge balance penalties? Check the MAB calculator.