About the fixed deposit calculation
A fixed deposit locks a sum away for a set term at a guaranteed rate, compounded quarterly by banking convention. The certainty is real, but so is the main risk people overlook: after inflation and tax, a deposit paying less than the inflation rate loses purchasing power even while the number on the statement grows.
Formula
A = P × (1 + r/4)^(4t)
P = deposit
r = annual rate as a decimal
t = years
The 4 is quarterly compounding, which is standard for term deposits.Worked example
100,000 at 7% for 5 years: 100,000 × (1 + 0.0175)²⁰ = 141,478. The effective annual yield is 7.19%, slightly above the quoted 7%.
Frequently asked questions
Why is the effective rate higher than the quoted rate?
Because interest is added four times a year and subsequent quarters earn on that larger balance. A quoted 7% compounded quarterly yields 7.19% over a full year.
Is a fixed deposit safe?
The nominal amount is very safe — deposits are typically insured up to a statutory limit. What is not protected is purchasing power. A 6% deposit during 7% inflation is a guaranteed real loss.
What happens if I break the deposit early?
Most banks apply a penalty, usually a reduction of 0.5 to 1 percentage point, and pay the rate applicable to the period actually held rather than the original contracted rate. This calculator assumes the deposit runs to term.
Is the interest taxable?
In most jurisdictions yes, as ordinary income, and often deducted at source. This calculator shows the pre-tax figure. Reduce the rate you enter by your marginal tax rate for an after-tax view.
Sources
- Standard quarterly-compounded deposit formula