Total Amount
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Table of Contents
| Year | Principal | Total Amount |
|---|
How fixed deposit interest is calculated
Most cumulative fixed deposits use the standard compound interest formula with annual compounding:
A = P × (1 + r ÷ n)n × t
- A — maturity amount (what you receive at the end)
- P — principal (your starting deposit)
- r — annual interest rate as a decimal (e.g. 0.05 for 5%)
- n — compounding periods per year (this calculator assumes 1 = annual; many banks use quarterly = 4)
- t — term in years
Worked example using the calculator's defaults ($5,000 deposit, 5% annual rate, 10 years, annual compounding):
- P = $5,000, r = 0.05, n = 1, t = 10
- (1 + 0.05)10 = 1.62889
- A = 5,000 × 1.62889 ≈ $8,144.47
- Interest earned over 10 years: $3,144.47
- Effective annual yield: 5.00% (matches the nominal rate since compounding is annual)
If your bank compounded quarterly at the same 5% nominal rate, the maturity value would be $8,218.10 — about $74 more, because more frequent compounding adds slightly to the effective yield (5.09% APY vs 5.00%).
FD vs CD vs HYSA vs liquid funds
The right deposit product depends on your country, your time horizon, and how much liquidity you need:
| Product | Typical 1-yr rate (2025–2026) | Liquidity | Best for |
|---|---|---|---|
| Fixed Deposit (India) | 6.5–7.5% | Locked, penalty 0.5–1% if broken | Conservative savers, retirees |
| CD (US) | 4.5–5.25% APY | Locked, 90–365 days interest penalty | Known goals 6–24 months out |
| High-yield savings (US) | 4.0–4.75% APY | Same-day access | Emergency fund, near-term needs |
| Liquid fund (India) | 6–7% (variable) | 1–2 day redemption | Cash management, 0–3 month parking |
| Recurring Deposit (RD) | Similar to FD | Locked monthly contributions | Building a lump sum from monthly savings |
In India, FDs remain the dominant savings product even though debt mutual funds and liquid funds often deliver similar or better risk-adjusted returns. The trade-off is familiarity and bank-guaranteed principal vs slightly higher returns with very low (but non-zero) risk.
Tenure: how long should you lock in?
The right tenure depends on the shape of the rate curve and your liquidity needs. As of 2025–2026 in the US, longer-term CDs are paying LESS than 1-year CDs (inverted curve), meaning you shouldn't lock in for 5 years unless you specifically need the certainty. In India and most other countries the curve is normal — longer tenures pay more.
| Tenure | $5,000 at 5% (annual compound) | Annualized real return at 3% inflation |
|---|---|---|
| 1 year | $5,250 | +1.94% |
| 3 years | $5,788 | +1.94% |
| 5 years | $6,381 | +1.94% |
| 10 years | $8,144 | +1.94% |
| 20 years | $13,266 | +1.94% |
The real return stays constant per year — that's the math. The dollar gap widens with time because compounding works on the cumulative balance. Over 20 years, even a "boring" 5% FD nearly triples your starting deposit.
Cumulative vs non-cumulative FDs
Two structurally different ways to receive your interest:
- Cumulative FD. Interest is added to the balance and compounds. You receive principal + all interest at maturity. Best for wealth building — this calculator models a cumulative FD.
- Non-cumulative FD. Interest is paid out periodically (monthly, quarterly, or annually) to your bank account. The principal stays constant; the interest is income. Best for retirees who want predictable income from a known capital base.
The total interest earned over the term is slightly higher on a cumulative FD because of compounding — on a 5% 10-year FD, the cumulative version earns about $3,144 in interest vs $2,500 from a non-cumulative simple-interest payout. If you don't need the income, take cumulative.
Premature withdrawal: the cost
If you break an FD before maturity, the bank typically (a) charges a penalty of 0.5–1% of the interest rate, and (b) pays interest only at the rate applicable to the actual completed tenure, not the booked tenure. Example: you book a 5-year FD at 7%; you withdraw after 2 years. The bank's 2-year FD rate is 6%, so they pay you 6% − 1% penalty = 5% on the actual 2-year period — not the 7% you'd booked.
This is why mid-length tenures often beat 5-year tenures — if there's any chance you'll need the money early, the penalty cost on a long-tenure FD can wipe out most of the rate premium you accepted by locking in.
Limitations of this calculator
- Annual compounding assumed. Many banks compound quarterly or monthly. Quarterly compounding adds about 0.09% to a 5% nominal rate (effective APY 5.09%). Re-run with the relevant compounding if your bank's terms differ.
- Ignores taxes. FD interest is taxable in most countries — in some (India, US) the bank withholds tax at source. The maturity value shown is pre-tax.
- Ignores premature withdrawal penalties. If you might not hold to maturity, the actual return could be significantly lower.
- Ignores currency risk for foreign FDs. An NRI booking a high-rate INR FD takes on currency risk that can erase the rate premium if INR depreciates against USD/GBP.
- Single-rate assumption. Floating-rate FDs and special-tenure promotional rates aren't modeled.
Sources & references
- FDIC National Rates and Rate Caps — reference rates for US CDs (the American equivalent of an FD).
- FDIC Deposit Insurance — $250,000 federal coverage on US deposits.
- Deposit Insurance and Credit Guarantee Corporation (India) — ₹5 lakh insurance on Indian bank FDs.
- Financial Services Compensation Scheme (UK) — £85,000 coverage on UK bank deposits.
- US Bureau of Labor Statistics — CPI — inflation reference for calculating real returns.
FAQs
They're essentially the same product under different names. “Fixed deposit” (FD) is the term used in India, Singapore, the UK and most Commonwealth countries; “certificate of deposit” (CD) is the US term. Both pay a fixed interest rate in exchange for committing money for a set term, both charge penalties for early withdrawal, and both are protected by their country's deposit insurance scheme up to a cap. The mechanics, math, and use cases are identical.
Most fixed deposits use compound interest: A = P × (1 + r ÷ n)n × t, where P is your principal, r is the annual rate, n is compounding periods per year, and t is the term in years. Some FDs use simple interest (especially short-term or non-cumulative variants) where interest is calculated only on principal each year and not added to the balance. Always confirm with your bank whether interest is cumulative (added to the balance) or non-cumulative (paid out periodically) — the maturity value differs.
In most countries, yes. In the US, CD interest is taxable as ordinary income in the year it accrues, even if it isn't withdrawn. In India, FD interest is taxable as “income from other sources” and TDS (tax deducted at source) is withheld at 10% if interest exceeds ₹40,000/year (₹50,000 for seniors). In the UK, FD interest above the Personal Savings Allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate) is taxable. Always check your country's current rules.
Up to a country-specific insurance limit. US: FDIC insures CDs up to $250,000 per depositor per institution. UK: FSCS covers £85,000 per person per bank. India: DICGC covers ₹5 lakh (₹500,000) per depositor per bank. EU: most national schemes cover €100,000. Within those limits, the government effectively guarantees your principal even if the bank fails. Above the limit, you become an unsecured creditor in the bank's failure proceedings — a real risk that's worth spreading large balances across multiple banks to avoid.
Sometimes — depends on the spread between your FD rate and the current inflation rate. In 2025–2026 with US 1-year FDs/CDs paying 4.5–5.25% APY and CPI inflation around 2.5–3%, you're earning a real return of roughly 1.5–2.5%. In high-inflation periods (US 2022 at 9% CPI, India in some years above 7%), fixed deposits often deliver negative real returns — you nominally grow but lose purchasing power. For long-term wealth building (10+ years) equities have historically outperformed FDs by a wide margin even after accounting for volatility.