Cumulative vs payout — pick the right one
| Cumulative FD | Payout FD (monthly / quarterly) | |
|---|---|---|
| Interest | Added back to the deposit, compounds | Paid to your account, does not compound |
| You receive | One lump sum at maturity | Regular income + principal at maturity |
| Total return | Higher (compounding) | Lower for the same rate |
| Best for | Growing a lump sum you don't need meanwhile | Retirees and anyone needing steady income |
On ₹10,00,000 at 7% for 5 years, a cumulative FD (quarterly compounding) matures around ₹14,14,778 — about ₹4,14,778 interest. A monthly-payout FD at the same rate pays roughly ₹5,833 a month (₹3,50,000 over 5 years) and returns the ₹10,00,000 at the end. The compounding gap is ~₹65,000.
How the maturity figure is worked out
Cumulative: A = P × (1 + r / (100 × n))^(n × t) — n is compounding periods per year (4 for quarterly), t the tenure in years. Payout: interest each period is P × r / 100 ÷ periods-per-year, paid out, principal untouched.
The effective annual yield shown is the rate that, compounded once a year, gives the same result — it's always a little above the nominal rate for a cumulative FD because of intra-year compounding.
Tax on FD interest
FD interest is fully taxable at your income-tax slab, added under "Income from other sources". The bank deducts TDS at 10% once your interest across all FDs at that bank crosses ₹40,000 in a year (₹50,000 if you're a senior citizen), or 20% if your PAN isn't updated. TDS is only an advance — if your slab is higher you pay the difference, if it's nil you claim it back or file Form 15G/15H. The optional TDS line here is a rough guide, not a tax computation.
Questions
Which compounding frequency should I choose?
Match the bank's FD terms — most Indian banks state "compounded quarterly". Monthly compounding gives a slightly higher maturity; yearly, slightly lower.
Cumulative or payout?
Cumulative for maximum growth on money you won't touch; payout if you need the interest as regular income. Cumulative returns more overall.
What does a monthly-payout FD pay?
Simple interest: P × r / 100 / 12 per month. Principal comes back at maturity. Some banks apply a marginally lower rate for this mode.
Is TDS the total tax?
No. FD interest is taxed at your slab; TDS (10%, or 20% without PAN) is an advance against that.
Do seniors get more?
Usually +0.25% to +0.75%. Tick the senior-citizen box to add it to the base rate.
Estimates only. Actual maturity depends on the bank's exact compounding convention, day-count, rounding, and any change in rate on renewal. Confirm with the bank before depositing.