What reinvesting FD interest does on the calculator
Reinvesting FD interest means the bank leaves the interest inside the deposit, so later interest is calculated on a larger amount. Paying the interest out means that compounding does not happen. The FD calculator on this site models the first as compound interest and the second as a simple-interest sketch. The 7% below is an assumption, not a card rate.
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₹2 lakh at 7% for 5 years
Bar chart of about ₹82,956 interest when it compounds quarterly and ₹70,000 when it is simple interest.
- Interest, compounded₹82,956
- Interest, paid out₹70,000
Reinvest means the interest stays in
On a cumulative FD the interest is not sent to your savings account. It is added to the deposit. The next period’s interest is charged on principal plus the interest already earned. That is compounding. The FD calculator does it as A = P × (1 + r/n)^(n × t). Quarterly, the default, uses n = 4.
A payout FD sends the interest out on a schedule. You can spend it or put it somewhere else, but the deposit itself does not grow by that interest. The calculator’s simple-interest option, A = P + P × r × t, is the sketch for that total. It is an approximation of the payout, not a second kind of bank contract.
The ₹12,956 is the compounding, before tax
₹2,00,000 at 7% for five years, quarterly, matures near ₹2,82,956. Subtract the principal and the interest is about ₹82,956. Simple interest on the same principal, rate and years is ₹70,000, so the maturity sketch is ₹2,70,000. The gap, about ₹12,956, is what reinvestment added in this example.
Your receipt may say 7.1% or compound monthly. Type that. The gap shrinks if the rate is lower or the tenure is shorter, and it grows if you hold longer. Do not quote ₹12,956 for a one-year deposit.
- Cumulative, quarterly, 7%, 5 years: interest about ₹82,956.
- Simple payout sketch: interest ₹70,000.
- Gap: about ₹12,956, before tax.
Tax does not care that you left the interest in
For a resident, FD interest is taxable when it is credited, including interest that is only compounded and paid at maturity. TDS under the familiar section 194A is a collection once interest at that bank crosses the threshold on the department’s list: ₹50,000, or ₹1,00,000 for a senior citizen. It is not the final tax.
The new regime, as the income-tax calculator applies it, does not give the old-regime 80TTB deduction. A senior who reinvests the interest has not made it tax-free. Add the year’s interest in the income-tax calculator if you want it sitting on top of salary. The FD page itself is pre-tax.
When payout is still the right screen
If you need the interest to pay a bill every quarter, compounding to a larger maturity does not help that bill. Use the payout sketch and plan to spend the interest. If the goal is a sum on a date, cumulative is the larger pre-tax maturity on these maths.
Breaking the FD early can change the rate and add a penalty the maturity figure ignores. Auto-renewal can also reinvest into a new deposit at a rate you did not look at. Match the tenure to the date you need the money, then choose cumulative or payout.
Worked example: ₹2 lakh, 7%, 5 years
7% is an assumption. Quarterly compounding versus the calculator’s simple-interest option. No TDS and no penalty.
| Item | Figure |
|---|---|
| Principal | ₹2,00,000 |
| Cumulative maturity | about ₹2,82,956 |
| Cumulative interest | about ₹82,956 |
| Simple-interest maturity | ₹2,70,000 |
| Simple interest | ₹70,000 |
| What reinvestment added, before tax | about ₹12,956 |
Reinvesting means the interest compounds. On these inputs that is about ₹12,956 more interest than the payout sketch, and the interest is still taxable. Type your bank’s rate and frequency. Do not treat 7% as the rate you are owed.
Sources
Results from FinanceChacha are estimates for planning, not financial or tax advice. Read the disclaimer.
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