The fixed deposit (FD) maturity formula calculates how a lump sum grows when locked in at a fixed interest rate for a set tenure, with interest compounding at a chosen frequency. This is the standard compound interest formula applied to bank FDs, one of the most common savings instruments in India.
Formula
A = P × (1 + r/n)^(n×t)
| Variable | Meaning |
|---|---|
| A | Maturity amount (principal + interest) |
| P | Principal amount deposited |
| r | Annual interest rate (as a decimal, e.g. 7% = 0.07) |
| n | Compounding frequency per year (12 = monthly, 4 = quarterly, 1 = annually) |
| t | Tenure in years |
To find just the interest earned: Total Interest = A − P
Worked Example
₹1,00,000 deposited at 7% per annum for 5 years (60 months), compounded quarterly (n = 4):
- Periodic rate: r/n = 7% ÷ 4 = 1.75% per quarter
- Number of periods: n × t = 4 × 5 = 20 quarters
- A = 1,00,000 × (1 + 0.0175)²⁰ = ₹1,41,478
- Total interest: ₹1,41,478 − ₹1,00,000 = ₹41,478
- Effective annual yield: (1,41,478 ÷ 1,00,000)^(1/5) − 1 = 7.19%
Notice the effective yield (7.19%) is slightly higher than the nominal 7% rate quoted by the bank — that gap is entirely the effect of quarterly compounding, since interest earned in one quarter starts earning interest of its own in the next.
Key Things to Know
- Cumulative FDs give the highest maturity amount because interest reinvests every compounding period instead of being paid out — if you need regular income, a monthly or quarterly payout FD trades a lower total return for cash flow along the way.
- Higher compounding frequency always produces a slightly higher final amount for the same nominal rate, but the improvement shrinks quickly — quarterly compounding captures most of the benefit monthly compounding would add.
- Senior citizens typically get 0.25–0.5% higher rates on the same FD product, which compounds into a meaningfully larger maturity amount over long tenures even though the rate difference looks small.
- FD interest is taxable as per your income slab in the year it accrues (for cumulative FDs, generally the year it's credited), so the maturity amount this formula produces is pre-tax — see the Recurring Deposit Formula for how the same compounding logic applies when deposits are spread across the tenure instead of made upfront.