Offers
Rates
V-KYC
Debit Card Related
Credit Card Related
SA Welcome Kit 
Manage Mandate(s)
Get Mini Statement
categories
Bloggers
Blog collection
Press Release
Power of Compound Interest: How it Operates on Fixed Deposit (FD)
Posted on Wednesday, September 25th, 2024 | By IndusInd Bank
Compound interest has the power to transform your savings and investments significantly over time. Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on both the initial amount and the interest that accumulates. This difference might look nominal but can lead to substantial growth in the value of an investment, especially over the long term.
One of the most common and secure ways to benefit from compound interest is through Fixed Deposits (FDs).
How Does Compound Interest Work in Fixed Deposits?
When you open a fixed deposit account with a bank, you agree to lock your funds for a specified tenure at an agreed-upon interest rate. The frequency of compounding plays a crucial role in determining how much interest your deposit will earn. The more often interest is compounded, the more you earn since interest is calculated on both the principal amount and the interest already earned. Let’s understand clearly with the two examples below:
Annual Compounding in Fixed Deposits
If the interest is compounded annually, the calculation process involves adding interest to the principal once a year. For instance, consider an FD investment of ₹1,00,000 with a yearly interest rate of 6%, compounded annually. The growth would be as follows:
- End of year 1: ₹1,00,000 + 6% of ₹1,00,000 = ₹1,06,000 -H3
- End of year 2: ₹1,06,000 + 6% of ₹1,06,000 = ₹1,12,360 -H3
- End of year 3: ₹1,12,360 + 6% of ₹1,12,360 = ₹1,19,102 -H3
- End of year 4: ₹1,19,102 + 6% of ₹1,19,102 = ₹1,26,248 -H3
- End of year 5: ₹1,26,248 + 6% of ₹1,26,248 = ₹1,33,823 -H3
You may wonder, does a fixed deposit compound interest quarterly as well? Yes, this option does exist and can significantly boost your financial outcome. Let’s find out how below.
Quarterly Compounding in Fixed Deposits
Consider the same investment of ₹1,00,000 at an annual interest rate of 6%, but this time, the interest is compounded quarterly. By the end of the first year, your total amount would be approximately ₹1,06,136. This amount is higher than with annual compounding because interest is added to the principal every 3 months instead of once a year.
Want to Maximise Returns from Compound Interest? Choose IndusInd Bank FDs
IndusInd Bank Fixed Deposits offer best-in-class interest rates, which means more growth for your hard-earned savings and additional returns through the enhanced compounding effect. Besides higher FD interest rates and growth, look at the additional benefits you get:
| Hassle-free instant booking | Open your FD online in just three easy steps. Simply apply online, provide your PAN and Aadhaar details, and deposit the amount |
| Auto-renewal option | Enjoy the convenience of auto-renewal to continue your investments hassle-free |
| Video KYC | Complete a video KYC instantly and book an FD of any amount |
| Tax saver FD | Save on taxes by booking a five-year tax-saver FD. |
| Flexible tenures | Choose tenures that fit your financial goals, from short-term to long-term options |
Also Read: Different Types of Fixed Deposits
Key Takeaways
Different compounding frequencies, such as annual or quarterly, impact your FD returns in various ways. The power of compounding turns time and patience into wealth and grows your FD investment exponentially over the years. This might explain why compound interest is often considered as the eighth wonder of the world by many investors.
Choose IndusInd Bank Fixed Deposits to enjoy competitive rates and leverage the power of compounding to its fullest potential. Moreover, the convenience of online booking and flexible tenures allow you to customise your FD investments to your financial goals. So, why wait? Let your hard-earned savings grow significantly over time. Apply now!
Disclaimer:The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
