FD Calculator: How It Works
A fixed deposit trades access for certainty: you lock a sum for an agreed term and the bank guarantees a rate. This page covers what your maturity value will actually be after tax, what breaking the deposit costs, and how laddering removes the main drawback.
Cumulative or non-cumulative — pick deliberately
| Cumulative | Non-cumulative | |
|---|---|---|
| Interest paid | At maturity, reinvested throughout | Monthly, quarterly or annually |
| Compounding | Yes | No — interest leaves the deposit |
| Final value | Higher | Lower |
| Suits | Growing a lump sum | Living on the income |
100,000 at 7% for 5 years, compounded quarterly, returns 141,478 cumulative. The non-cumulative version pays out 7,000 a year and returns your 100,000 — total 135,000. The 6,478 difference is compounding you gave up in exchange for income along the way.
Maturity value
M = P × (1 + r/n)n×t
Most banks compound quarterly, so n = 4. Check this before comparing two banks: an advertised 7.1% compounded annually is worth less than 7.0% compounded quarterly.
| Term | Rate | Maturity on 100,000 | Interest |
|---|---|---|---|
| 1 year | 6.5% | 106,660 | 6,660 |
| 2 years | 7.0% | 114,888 | 14,888 |
| 3 years | 7.0% | 123,144 | 23,144 |
| 5 years | 7.0% | 141,478 | 41,478 |
Tax turns a good rate into an average one
Interest is generally taxable as ordinary income in the year it accrues — including on cumulative deposits where you have not received it yet. Banks often deduct tax at source above a threshold. A 7% deposit held by someone paying 30% tax yields roughly 4.9% after tax. If inflation is running at 5%, the real return is negative even though the deposit 'earned' 7%. This is the central limitation of fixed deposits: they protect capital in nominal terms, not in purchasing power.
Breaking a deposit early
Premature withdrawal usually triggers two penalties at once. The bank pays the rate applicable to the period actually completed rather than the rate you booked, and then deducts a penalty of typically 0.5–1 percentage point on top. Break a 5-year deposit after 14 months and you may be paid the 1-year rate minus a penalty — sometimes less than a savings account would have paid.
Laddering
Instead of placing 500,000 in one 5-year deposit, place 100,000 each in 1, 2, 3, 4 and 5-year deposits. One matures every year and can be reinvested at the then-current 5-year rate. After five years you hold five 5-year deposits with one maturing annually.
- Something is always within a year of maturing, so you rarely need to break one.
- Reinvestment is spread across the rate cycle rather than concentrated on a single day.
- You capture most of the long-term rate while keeping most of the flexibility.
Before you commit
Check the deposit insurance limit in your jurisdiction and keep balances per bank within it. Note whether the deposit auto-renews — many do, often at a worse rate, if you do not give instructions. And check whether a loan against the deposit is available, since borrowing 90% against it at 1–2% above the deposit rate is frequently cheaper than breaking it.