Question 1

How is FD maturity amount calculated?

Accepted Answer

For a cumulative FD the maturity amount is calculated using compound interest: A = P × (1 + r/n)^(n×t), where P is the principal, r is the annual interest rate, n is the number of compounding periods per year, and t is the tenure in years. For non-cumulative FDs, interest is paid out periodically and the principal is returned at maturity.

Question 2

What is the difference between cumulative and non-cumulative FD?

Accepted Answer

In a cumulative FD, interest is reinvested and compounded — you receive the full amount (principal + interest) only at maturity. In a non-cumulative FD, interest is paid out at regular intervals (monthly, quarterly, or annually) and only the principal is returned at maturity. Cumulative FDs give a higher effective return due to compounding.

Question 3

Which compounding frequency gives the highest FD return?

Accepted Answer

More frequent compounding gives a slightly higher effective return on the same nominal interest rate. Monthly compounding yields more than quarterly, which yields more than annual compounding. The difference is small for typical FD tenures — use this calculator to compare the exact maturity amounts.

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