Quarterly Compounding — The Indian Standard
Almost all Indian banks compound FD interest quarterly (4 times a year). This means every 3 months, the interest earned is added to the principal, and the next quarter's interest is calculated on this larger amount.
The Formula
A = P × (1 + r/4)^(4×t)
Where P = principal, r = annual rate (decimal), t = tenure in years.
Example: ₹1,00,000 at 7% for 1 year = ₹1,00,000 × (1.0175)^4 = ₹1,07,186
With simple interest it would be ₹1,07,000 — so compounding earns you an extra ₹186 on ₹1 lakh.
Cumulative vs Non-Cumulative FDs
Cumulative: Interest is reinvested and compounded. You get a lump sum at maturity. Better for growth.
Non-cumulative: Interest is paid out monthly/quarterly. You get regular income but lower total returns.
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