How to Calculate Interest on Fixed Deposits: The Compounding Effect
October 13, 2026
Fixed Deposits allow you to earn a predetermined rate of interest by placing a lump sum with a bank for a selected tenure. The amount you receive at maturity depends on the deposit amount, interest rate, tenure, calculation method and interest pay-out option.
In this blog, we explain how FD interest rate is calculated using simple and compound interest, how compounding and pay-out frequencies differ, and how you can estimate your returns using an FD calculator.
Different Types of FD Interest Calculations
Fixed Deposits (FDs) are a popular investment choice due to their safety and predictable returns. There are two primary methods for FD interest calculation:
Simple Interest Method:
Simple Interest = (P × R × T) ÷ 100
Where:
For example, if you invest ₹1 lakh at 5% per annum for three years:
Interest = (₹1,00,000 × 5 × 3) ÷ 100 = ₹15,000
The maturity amount in this simplified example would be:
₹1,00,000 + ₹15,000 = ₹1,15,000
Actual interest calculations may differ depending on the deposit tenure, number of days and interest pay-out option.
However, the simple interest method is used primarily for non-cumulative FDs that come with periodic interest pay-outs. For cumulative FDs, where the interest is paid at the end of the tenure, the compound interest calculation method is used. And this where it gets interesting.
Compound Interest Method:
More complex to calculate but extremely useful when it comes to money matters, the compound interest method involves interest earning on the initial principal and on previously earned interest, meaning you earn interest on the accrued interest and principal amount when your FD gets reinvested. This helps in generating higher returns at the time of maturity.
Formula:
A = P(1 + r/n)ⁿᵗ
Where:
For example, if ₹1 lakh earns 5% per annum and is compounded annually for three years:
A = ₹1,00,000 × (1 + 0.05)³ = ₹1,15,762.50
The interest earned would therefore be ₹15,762.50. This is an illustrative calculation. The actual amount will depend on the bank’s compounding method and deposit terms.
Disclaimer:
The above examples are for educational purposes only. Ujjivan SFB doesn’t take any responsibility regarding the accuracy of the information. For lates Ujjivan FD rates, please click here.
How Is Interest Calculated and Paid on Ujjivan SFB Fixed Deposits?
The calculation method depends on the deposit tenure and the interest option you select.
Deposits with a tenure of up to 180 days: Interest is generally calculated using the simple interest method and paid at maturity.
The maturity amount may also be affected by the exact deposit dates, applicable interest rate, TDS and premature-withdrawal conditions. Check the latest deposit terms before booking an FD.
Is FD Interest Taxable and When Does TDS Apply?
Interest earned on a Fixed Deposit is generally taxable under the head “Income from Other Sources”. You must include the complete interest income in your tax return, even if the bank has not deducted TDS. For interest paid or credited by a bank, TDS generally applies when the interest exceeds:
The standard TDS rate is generally 10% when you provide a valid PAN. A higher rate may apply if PAN requirements are not met. The TDS threshold is not a tax exemption. Your final tax liability depends on your total taxable income and applicable tax rate. Eligible resident depositors may submit Form 121, which is the new consolidated self-declaration replacing Form 15G or Form 15H, subject to the prescribed conditions.
Online FD ROI Calculators may Help Calculate FD Interest Properly
Manual calculations provide an estimate, but the final amount may vary based on the exact tenure, applicable interest rate, pay-out option and compounding method. You can use Ujjivan SFB’s Fixed Deposit ROI Calculator to estimate your interest earnings and maturity amount.
Enter the deposit amount and tenure, select whether you are a regular or senior citizen, and choose the applicable interest pay-out option. The result is indicative and should be checked against the latest deposit rate and product terms.
The calculator currently supports the deposit amount, tenure, customer category and pay-out-frequency inputs.
Benefits of Using Online Calculators
Using online calculators offers several advantages:
Final Thoughts
Fixed Deposits are reliable investments. They protect your money from market volatility. However, knowing how to calculate interest on Fixed Deposits can help you make better investment decisions. Use this knowledge to strategically plan and enhance your financial portfolio’s growth potential.
Looking to grow your savings? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.
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