Fixed deposit interest calculator:
payout or maturity, which suits you?

Payout or cumulative: the choice behind every fixed deposit

A fixed deposit can be set up in two broad ways. With a cumulative option, interest is added to the deposit and you receive everything at maturity. With a payout option, the interest is paid out to your account at regular intervals and the principal returns at the end.

Think of it as a choice between two uses of the same interest: spend it as it arrives, or let it work inside the deposit. Neither is better in general; they answer different questions.

The headline rate may look the same for both, but the cash flow and the final amount are not. Choosing between them comes down to whether you need income now or want the largest sum later.

The numbers below are illustrations with assumed rates. Actual rates, compounding and payout rules depend on the bank and the date, so check your bank's rate card.

Cumulative FD formula: maturity with compounding

Cumulative means that the interest stays inside the deposit and is added to the principal at each compounding date. From the next period, the interest is calculated on the larger figure.

Many Indian banks compound fixed-deposit interest quarterly, though this varies by product. Your deposit receipt or the bank's rate card states the method that applies to you.

1. 1Convert the rate to a decimal.
2. 2Divide by the number of compounding periods per year.
3. 3Raise 1 plus that figure to the power of periods per year times tenure.
4. 4Multiply by your deposit to get the maturity amount.

Worked example: ₹1,00,000 for 2 years at an assumed 7%

The effective annual yield of 7% compounded quarterly is (1 + 0.07 ÷ 4)^4 − 1 = 7.19%. That is why a cumulative deposit earns a little more than the quoted 7% suggests.

Effective yield is the fair way to compare offers. Imagine two assumed offers: one pays 7.2% compounded quarterly, the other pays 7.3% once a year with no compounding. The first has an effective yield of (1 + 0.072 ÷ 4)^4 − 1 = 7.40%, so it beats the second despite the lower headline number.

Tenure also changes the result, as the next table shows.

The interest earned does not grow in a straight line. Moving from 5 to 10 years does not merely double the interest (₹41,478 against ₹1,00,160), because the later years compound a bigger balance.

Interest rates move, so the figure for one tenure today is not a promise for the same tenure next year. If you expect to need part of the money early, a shorter tenure or a ladder of several deposits is easier to manage.

Longer tenures also lock your money in. Choose a tenure that matches when you will need the money, not simply the one that looks best on a table.

Payout FD: how much interest you receive each period

For ₹10,00,000 at an assumed 7%, a payout FD pays about ₹5,833 a month, ₹17,500 a quarter, ₹35,000 half-yearly or ₹70,000 a year. The yearly total is the same; only the timing differs.

Banks often quote a slightly lower rate for more frequent payouts, because you receive the money sooner. Confirm the exact figure for your option before you decide.

Payout versus cumulative: what you give up and what you gain

Compare the totals over three years on ₹10,00,000 at an assumed 7%. The cumulative deposit compounds to about ₹12,31,439 at maturity, which is ₹2,31,439 of interest. The payout option returns ₹2,10,000 of interest across three years, plus your ₹10,00,000 at the end.

The difference, about ₹21,439, is the value of compounding. You could reduce that gap by reinvesting each payout, but that depends on what you earn on the reinvested money.

Sizing a payout deposit works backwards from the income you want. To receive ₹20,000 a month from interest at an assumed 7%, you need a deposit of ₹20,000 × 12 ÷ 0.07 = ₹34,28,571. A lower rate means a larger deposit, so test the target at a couple of rates before committing.

Remember that taxes and inflation reduce what the interest is worth. A 7% payout on a deposit does not mean 7% extra spending power if prices rise by a similar amount.

Keep the tenure in mind too. When the deposit matures, you will renew at whatever rates apply then, so the income is not fixed beyond the term you have locked in.

Mistakes and checks before you book an FD

• Treating an assumed or old rate as today's offer. Rates change, so confirm the current rate with the bank.
• Comparing nominal rates for different compounding or payout frequencies. Compare effective yields.
• Ignoring premature-withdrawal terms. Closing early usually attracts a lower rate or a penalty.
• Forgetting tax. Interest is taxable under your income-tax slab, and tax may be deducted at source above a threshold set by the rules; check the current position.
• Putting all savings into one FD with one maturity date.
• Comparing offers by the headline rate alone. Convert to an effective yield first, as shown above.

Early closure shows why terms matter. Suppose the ₹1,00,000 deposit is closed after one year and the bank pays the one-year rate less 1 percentage point. At an assumed 6.5% for one year, that means 5.5%, so you would receive about ₹1,05,614 instead of the maturity amount you were aiming for. These are assumed figures; read your bank's premature-withdrawal terms.

For the step-by-step formula for cumulative and simple payout interest, the fixed deposit interest formula guide on this site covers the same mechanics. The simple interest and compound interest guide explains the compounding effect in more depth.