How Does the FD Calculator Work?
A Fixed Deposit (FD) is one of the most secure and dependable fixed-income investment vehicles offered by commercial banks and Non-Banking Financial Companies (NBFCs). When investing in an FD, you deposit a lump-sum principal for a predetermined tenure at an agreed-upon guaranteed interest rate.
In India, most commercial banks compound fixed deposit interest on a quarterly basis (4 times per year). Because accumulated interest is added to the principal balance every quarter, the subsequent quarter calculates interest on an enlarged balance, accelerating compounding growth.
Formula & Mathematical Methodology
The compound interest maturity value for Fixed Deposits is derived via:
A = P × (1 + r / n)^(n × t)
Where:
- A = Maturity Amount receivable upon tenure completion.
- P = Initial lump-sum principal deposit.
- r = Annual interest rate (in decimal: Annual Rate / 100).
- n = Compounding frequency per annum (4 for quarterly, 12 for monthly, 1 for yearly).
- t = Investment tenure in years.
Step-by-Step Practical Calculation Example
If you deposit ₹5,00,000 in a bank FD offering 7.25% per annum for a duration of 5 years with quarterly compounding:
- Principal Deposited (P): ₹5,00,000
- Tenure (t): 5 Years
- Compounding Periods per Year (n): 4 (Quarterly)
- Total Compounding Cycles: 5 × 4 = 20 quarters
- Interest Earned: ₹2,16,144
- Total Maturity Value: ₹7,16,144