Why 7% turns into 7.19%
Most banks add FD interest every quarter, not once a year. Each quarter's interest then starts earning interest too. That is why a 7% FD gives an effective yield of about 7.19% a year. On ₹1 lakh, the first year's interest is ₹7,186, not ₹7,000.
The effect grows with time. Five times the first year's interest is about ₹35,930, but the 5-year FD actually earns ₹41,478. The extra ₹5,548 is interest earned on interest.
Frequently asked questions
What is the interest on a ₹1 lakh FD for 1 year?
At 7% a year compounded quarterly, about ₹7,186, so the FD matures at ₹1,07,186. Rates differ from bank to bank and by tenure, and senior citizens often get a slightly higher rate, so check your own bank's rate.
How much is ₹1 lakh FD interest per month?
With a 7% example rate, the first year's interest of ₹7,186 works out to about ₹599 a month on average. If you choose a monthly payout FD, the amount is usually a little lower because the interest is not compounded.
What will ₹1 lakh become in an FD after 3 years?
Around ₹1,23,144 at 7% compounded quarterly, which means ₹23,144 of interest. For 2 years the figure is about ₹1,14,888. Longer tenures sometimes carry a different rate, so compare before you book.
Is FD interest taxable?
Yes. FD interest is added to your income and taxed at your slab rate. So if you pay tax, not all of the ₹7,186 earned in the first year on ₹1 lakh stays with you. Your post-tax return will be lower than 7%.
