Do FDs Give Compound Interest?

Save & Invest

Fixed deposits are still popular because they are the safest investment option and provide a monthly flow of funds into your bank account. Below, we will explain why and how FDs are still a popular investment vehicle, as well as the advantages of making FD investments.

What is a fixed deposit?

A fixed deposit is a straightforward investment that just needs a single deposit. You may put money in the bank’s core account for a predetermined amount of time (tenure). During this time, interest will accrue on the deposit. You will receive your money back along with interest.

How can we receive interest on our fixed deposit each month?

A fixed deposit is a sum of money that you put in a bank for a certain period in exchange for a predetermined interest rate. The method of interest payment is entirely up to you. There are two types of interest-receiving mechanisms. The cumulative option, in which interest is accumulated quarterly and paid upon FD or auto-renewed maturity, is one alternative. A non-cumulative option that pays interest on a monthly, quarterly, or maturity basis is another choice.

Why are monthly interest-bearing fixed deposits so popular?

Investors seeking steady monthly income in the form of FD interest have done well with FDs that pay interest monthly. It is popular among retirees and those who invest in it with the expectation of earning a constant pension. Even though the cumulative options have a slightly higher rate of interest, the main difference between monthly interest FDs and other FDs is that the investor may continue to get some interest on the FD corpus they have deposited every month. This gives them access to their money.

With the help of an FD interest calculator, you can better understand the interest rates on both monthly interest FDs and other FDs so you can make an informed decision.

Benefits of Monthly Interest and Fixed Deposits

1. Available for extended periods

Many years are needed to get interest income; hence, some banks provide monthly interest FDs for terms of up to 10 years.

2. Credit scores

With a monthly interest payment entering your account, you can have doubts regarding the FD’s quality. But for you to make an informed choice, these FDs have ratings from reputable credit rating companies.

3. Untimely withdrawals

If you fulfil the conditions, you may be able to prematurely withdraw some of these deposits. You must remember that breaking your FD early might result in a fine.

facility for overdrafts

Does FD give compound interest?

Yes. The interest that FD offers compounds. Simple interest and compound interest are the two formulas used to determine the interest on a fixed deposit. Depending on the deposit size and duration, banks may employ either option.

What makes the two different from one another? Simple interest just refers to the interest on the principal sum. In the case of compound interest, interest is accrued on both the principle and the interest.

When a fixed deposit matures, the principal and interest are often received together. Interest on FD is typically compounded.

But the interest doesn’t get added to itself if the account holder chooses to get it every month or quarter and have it sent to their savings account.

What exactly is an FD calculator?

Using a fixed deposit calculator, an investor can get an idea of how much money they should expect to get back at the end of a certain period for a certain deposit amount at the right rate of interest.

One can use an FD calculator to figure out how much interest one would get on a fixed deposit. The maturity amount is computed using the deposit amount, the FD interest rate, and the FD tenure. After the FD term, one receives the maturity amount. It is made up of all of the interest on the principle (deposit amount).

The benefits of using the FD calculator

Buying an FD is like making any other financial decision: you need to think about your budget and how it fits with your financial goals.

The main goals of fixed deposits are assured profits and risk minimization. There is still a sizable risk if you invest inside the market (like in equity mutual funds). To a certain extent, your FD investments can assist in absorbing losses. You should be aware of how much to deposit into your FD account for this. And the Paisabazaar.com FD Calculator makes it simple to estimate this.

Calculators for fixed deposits may also be used to compare the many FD plans that banks and other financial institutions have to offer. The optimal investment programme may be understood by looking at the tenure desired.

Final words 

Keep in mind that there are different interest rates for different FD tenures when investing. It does not guarantee that you will receive the greatest interest rate if you select the longest tenure option. Using the compound interest calculation, you can look at the interest rate table, which is usually on the bank’s website, to find out which term will give you the highest interest rate.

An extremely safe and profitable investment is an FD. Making your money work for you by making wise investments will pay you. Piramal Finance (www.piramalfinance.com) is an Indian financial services company that is making its foray into retail lending, which includes personal loans, business loans, housing loans, and other consumer-focused finance products.


  1. FD interest compounds, right?

The interest on a cumulative fixed deposit is accumulated either every quarter or every year, and it is accumulated until maturity. After the term, the principal amount and the interest are paid together. Each year’s interest is added to the principal amount.

  1. SBI offers compound interest on FDs, right?

The FD has a ten-year contract. The appropriate interest rate is 5.4% annually as well. Additionally, the interest on the fixed deposit is compounded every three months. The FD formula may be used to determine the interest rate and maturity value for SBI FDs.