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 Ć (1 + r/n)^(nĆt)
| 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 ā P
Worked Example
ā¹1,00,000 deposited at 7% per annum for 5 years (60 months), compounded quarterly (n = 4):
- Periodic rate: r/n = 7% Ć· 4 = 1.75% per quarter
- Number of periods: n Ć t = 4 Ć 5 = 20 quarters
- A = 1,00,000 Ć (1 + 0.0175)Ā²ā° = ā¹1,41,478
- Total interest: ā¹1,41,478 ā ā¹1,00,000 = ā¹41,478
- Effective annual yield: (1,41,478 Ć· 1,00,000)^(1/5) ā 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 0.25ā0.5% 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.