Fixed Deposits

How does an NBFC Calculate Interest on your Fixed Deposits?



As per a recent analysis, fixed deposits generated the highest returns on investments in India for the financial year of 2018 compared to other saving schemes. Even in 2020, fixed deposits are still regarded as the most secure form of investment. However, before opening a fixed deposit account, you should know the fixed deposit interest rates offered by your financial institution.

Moreover, your financial institution or NBFC will deduct tax at source if the annual interest earned from all deposits exceeds Rs.40,000. Hence, you should learn how to calculate interest rate to know whether your annual interest income is tax-exempt or not.

How an NBFC calculates interest on your fixed deposits?

To understand how your financial institution or NBFC calculates interest on your fixed deposit account, make a note of the following methods –

  1. Non-cumulative fixed deposit interest rate

For non-cumulative interest rates, the interest amount on your FD is calculated periodically. Moreover, in such FDs, depositors can withdraw the interest amount monthly, quarterly, semi-annually and annually.

The formula to calculate interest of FDs with non-cumulative interest rates is – I = P x r x t/100.


  • I = required fixed deposit interest.
  • P = principal amount.
  • r = interest rate.
  • t = investment tenor.
  1. Cumulative fixed deposit interest rates

Cumulative FD interest rate is a type of interest which is compounded annually. However, account holders cannot avail the withdrawal facility of the interest amount before the maturity date.

The formula to calculate FD interest for cumulative interest rates is – A = P (1 + r/n) ^ (n x t).


  • A = maturity amount.
  • P = principal amount.
  • r = interest rate.
  • n = number of times said interest is compounded.
  • t = investment tenor.

So, the total amount of interest earned = A – P.

Individuals can take the help of an online tool such as an FD calculator if they do not know how to calculate interest rate. This online calculator also follows the above methods to determine your interest amount.

Factors affecting your fixed deposit interest rates

Several factors affect your fixed deposit interest rates. They are –

  1. Lock-in period

It is the tenor of your term deposit or the investment period for which the interest is calculated on your deposited amount. You can select your investment period according to your financial goals.

This period varies across financial institutions and NBFCs across India. Generally, longer the tenor of your fixed deposit higher will be the interest offered.

  1. Type of applicant

The customer type also plays an important role in fixed deposit rates offered by NBFCs. Indian citizens and Non-Resident Indian individuals are offered similar fixed deposit interest rates while employees of NBFCs such as Bajaj Finance gain comparatively higher rates of interest.

However, applicants who can avail most benefits from opening FD accounts in India are the senior citizens. Investors above the age of 60 are offered the highest FD rates along with additional tax benefits. Opting for a senior citizen fixed deposit scheme is among the most important tips to ensure you have regular income after you retire.

  1. Repo rate

Interest rates offered by financial institutions are updated frequently as per the changes in the repo rate done under the directive of the Reserve Bank of India.

During inflation or deflation, the economic condition of the country changes. Hence, RBI alters the repo rate accordingly thus affecting change in the FD rates.

If your annual earnings from all financial investments exceed Rs.40,000, you are required to submit Form 15G to make sure that your financial institution does not deduct any tax. The threshold is Rs.50,000 for senior citizens. In such cases, FD account holders above the age of 60 years are required to fill From 15H while those below 60 years need to submit Form 15G.

So, investors can consider the above discussion before learning how to calculate interest rate. It is also advised to take the assistance of an online fixed deposit calculator to determine your annual interest income.