Ever wondered how much your Fixed Deposit will actually grow over time?
FDs are known for being safe and reliable, but understanding how the interest is calculated can help you make smarter financial decisions—especially when you're comparing returns across tenures and amounts.
Whether you’re saving for a short-term goal like a vacation or a long-term milestone like your child’s education, knowing how FD interest works gives you better control over your money. In this guide, we will break down the interest calculation process in the simplest way—no jargon, just clarity.
If you are thinking of investing in a safe and secure investment option but not sure if you will get inflation-beating returns?
Check FD Rates offered by Bajaj Finance (Up to 8.60% p.a.) and invest confidently in just a few clicks.
Types of Interest on Fixed Deposits
FDs offer two ways to earn interest—Simple Interest and Compound Interest. Let’s break them down.
Simple Interest: Straightforward and predictable
Here, interest is calculated only on your principal amount. It stays the same throughout the FD tenure and is paid out monthly, quarterly, or yearly.
Example:
- Principal (P): Rs. 1,00,000
- Interest Rate (R): 6% p.a.
- Tenure (T): 2 years
Formula:
SI = (P × R × T) / 100 = (1,00,000 × 6 × 2) / 100 = Rs. 12,000
So, for a Rs. 1 lakh deposit at 6% p.a. for 2 years, you earn Rs. 12,000 in interest.
Compound Interest: Where your money earns on itself
Compound interest grows your money faster. You earn interest not just on your principal, but also on the interest you’ve already earned. It’s ideal if you’re not withdrawing periodically.
Example:
- Principal (P): Rs. 1,00,000
- Interest Rate (R): 6% p.a. (compounded annually)
- Tenure (T): 2 years
Formula:
A = P(1 + R/N)^(N×T)
A = 1,00,000 × (1.06)^2 ≈ Rs. 1,12,360
Compound Interest Earned = Rs. 12,360 |
Why compound interest wins?
Because as per the above given example you earn Rs. 360 more than simple interest over the same tenure. That adds up over time!
Did you know Bajaj Finance offers FD interest payout options like monthly, quarterly, half-yearly, yearly or on-maturity!
So, what are you waiting for? Open an FD now!