If you choose to invest in a fixed deposit, you need a clear idea of how your investment will grow over time. In other words, it is essential to understand how fixed deposit interest is calculated.
The interest on your FD is calculated primarily on the principal amount you deposit. Depending on the kind of deposit you choose (noncumulative or cumulative) the interest you earn on your investment can be simple or compound interest.
Simple interest is the interest that you earn on your investment amount alone. On the other hand, compound interest is what you earn on your principal and the interest accumulated so far.
In other words, it is interest on interest, which is what the power of compounding represents. Let’s take a closer look at how to calculate the FD interest in both cases.
To get a better idea of how to calculate interest on FDs, you need to understand the mathematical formulae involved.
Depending on whether you earn simple or compound interest on your deposit, the formula for how FD interest is calculated also varies, as outlined below.
Simple interest is the return you get from your fixed deposit investment without the power of compounding. Check out the formula for how to calculate fixed deposit interest on this kind of deposit below.
Simple interest = (P x R x T) ÷ 100 
Here, P is the principal investment amount, R is the rate of interest, and T is the tenor in years.
Here is an example to better understand how to calculate interest on fixed deposit in case of no compounding. The table below shows how the simple interest varies across different values of the principal, interest rate and tenor.
Principal 
Rate of Interest p.a. 
Tenor 
Simple Interest 
₹10,00,000 
5% 
1 years 
₹50,000 
5 years 
₹2,50,000 

10 years 
₹5,00,000 

₹10,00,000 
5% 
5 years 
₹2,50,000 

6% 
₹3,00,000 


7% 
₹3,50,000 

₹10,00,000 
5% 
5 years 
₹2,50,000 
₹50,00,000 
₹12,50,000 

₹1,00,00,000 
₹25,00,000 
Compound interest is the return that you earn when the power of compounding comes into effect. The formula for how to calculate fixed deposit interest on this kind of deposit below.
Compound interest = P (1 + r/n)nt  P 
Here, P is the amount you have invested, r implies the interest rate, n means the number of times the interest is compounded during a year, and t indicates the investment tenor in years.
If you want to get a better idea of how to calculate interest on fixed deposits when compounding comes into play, here is an example to help you out.
Consider you invest ₹10 Lakhs in a cumulative fixed deposit for a tenor of 5 years. Say it earns interest at the rate of 6% per annum and the interest is compounded annually.
In this case, using the FD calculation formula, here is what we have.
Compound interest:
= P (1 + r/n)nt  P
= 10,00,000 (1 + 0.06/1)1 x 5  10,00,000
= 13,38,226  10,00,000
= ₹3,38,226
Here is a snapshot of how the compound interest will be calculated for each year.
Year 
Opening balance 
Rate of Interest 
Interest Earned for the Year 
Closing Balance 
1 
₹10,00,000 
6% 
₹60,000 
₹10,60,000 
2 
₹10,60,000 
6% 
₹63,600 
₹11,23,600 
3 
₹11,23,600 
6% 
₹67,416 
₹11,91,016 
4 
₹11,91,016 
6% 
₹71,461 
₹12,62,477 
5 
₹12,62,477 
6% 
₹75,749 
₹13,38,226 
Total Interest Earned 
₹3,38,226 

Now that you know how to calculate interest on FDs, you may wonder how you can get the best FD returns. After all, the better the interest rate, the higher the returns, right? There is more to it! Here are some essential tips to get optimal returns on your fixed deposit.
Although they carry a slightly higher level of risk, NBFCs typically provide higher returns than bank FDs. So, if you find a trusted NBFC like Bajaj Finance, you can definitely opt for it to avail more optimal returns.
Always compare FD schemes from different banks and NBFCs and go for the one that gives higher returns on your investment. You can use an FD calculator to calculate interest on fixed deposits with different terms before you make a choice.
Additionally, you can compare various FD schemes on Bajaj Markets before zeroing in on a suitable plan.
Once you choose the plan that provides the best FD rates, you need to maximise your returns. When you select the cumulative option, you will receive your entire interest and your principal amount on maturity.
The compounding effect of cumulative FD results in higher returns.
In case your total income during the year does not exceed the basic exemption limit, you can submit form 15G or form 15H if you are a senior citizen. This helps you avoid TDS on FD interest. This will maximise the amount credited to your account from your FD investment.
Now that you know how to calculate interest on FD manually, here is a simplified version of FD interest calculations with an FD calculator. Follow the process outlined below to determine your earnings instantly:
Visit the FD calculator page
Select your profile as a senior citizen or a regular investor
Choose your preferred mode of interest payout as monthly
Enter the amount you plan to invest
Select the deposit tenor
Click on the ‘Calculate’ tab
That’s all. Now you can view your interest earnings instantly. Some calculators may not require you to enter your profile. In such cases, you can input the FD interest rate yourself and see your interest payout.
When you’re looking out for how to calculate fixed deposit interest, the formula undoubtedly plays a critical role. In fact, the FD calculator also works on the basis of these formulae. However, using this online calculator is far easier and ensures you get accurate results every time.
It also prevents you from making errors and acting on misinformation when you calculate interest on FD manually.
While a calculator helps calculate interest on FD, have you wondered about the factors governing the interest rates? Here are a few crucial points to help you understand how to calculate the fixed deposit interest rate.
Firstly, the duration of your FD tenor largely governs its interest rate. So, the longer you stay invested, the higher are the returns. In simple words, choosing long tenors can help maximise your earnings.
The only exception here are special tenors that are often issued by issuers. These special tenors come with higher FD interest rates in comparison to all others. Keep a lookout for them when you see the FD interest rate tables so you can plan your investment accordingly.
The next main factor affecting the FD interest rate is your age. As a senior investor, you can earn additional interest rate benefits of up to 0.250.50% p.a. over and above the existing FD rates. This way, you get better interest income when compared to nonsenior citizens.
To help you calculate the FD interest rate, it is essential to know the third factor, which is your FD type. Remember that opting for payout at maturity offers higher FD rates than the regular interest payout options like monthly or quarterly.
Depending on your financial needs, you can select a cumulative or noncumulative FD. When you have no immediate requirement for funds, opting for a cumulative or payout at maturity FD type is ideal.
Last but not least, consider the economic scenario or market conditions when you calculate the FD interest rate. The RBI’s monetary policy plays a significant role in determining current FD interest rates.
This should give you a fair idea of how fixed deposit interest is calculated and what you can do to optimise the returns on your FD. Plus, you are also aware of how to calculate the FD interest rate based on a few important criteria.
Before investing in a fixed deposit, ensure that you use an FD interest calculator to get a better idea of how your investment will grow over time.
FD interest depends on three key factors: your investment amount, the rate of interest and the tenor of investment. In the case of compound interest, the frequency of compounding also affects your returns.
To calculate FD interest rate using an online FD interest calculator, enter different parameters like the deposit amount, the rate of interest, the frequency of compounding and the tenor of investment. The online tool will then compute the interest earned and the maturity amount.
It is important to understand FD interest calculation because you can make smarter investment decisions with this knowledge. Once you know how your money grows in an FD, you can choose the ideal deposit plan, the tenor and the type of deposit (namely, cumulative or noncumulative).
Simple interest is computed only on the principal amount and does not benefit from compounding. Compound interest, on the other hand, is earned on the principal amount and the returns earned so far. In other words, it is interest on interest. Hence, cumulative FDs offer the benefit of compound interest.
Yes, it is when you choose a noncumulative FD with a monthly payout. This helps you receive your interest earnings every month.
The FD interest rate depends on the RBI’s monetary policy, the economic conditions of the country, the age of the investor, duration of the FD and the FD type.