Fixed deposits are one of the safest investment instruments available, but "safe" doesn't mean "simple." The actual return you receive depends on how frequently interest is compounded, the tax your bank withholds, and whether you're reinvesting interest or taking it out periodically.
Our Fixed Deposit Calculator handles all four compounding modes and tax scenarios, giving you an accurate picture of what your money will actually be worth at maturity.
Compounding Frequency: Why It Matters
The same headline rate of 8% per annum produces different returns depending on how often interest is applied to the principal.
- Monthly compounding -> interest is added to your balance every month, then earns interest itself. Best for growth.
- Quarterly compounding -> common in many Asian markets; interest applied four times per year.
- Annual compounding -> simpler to calculate; interest added once a year.
- At Maturity -> interest is paid as a lump sum at the end; no reinvestment benefit during the term.
Withholding Tax: The Hidden Cost
In many countries including Sri Lanka, India, and several others banks are required to withhold a percentage of your FD interest as tax before crediting it to your account. In Sri Lanka this has historically been 5%, though rates change with budget announcements.
If you don't account for withholding tax in your projections, you'll consistently overestimate your real return. Enter your applicable rate in the tool even small percentages compound into significant differences over multi-year tenures.
A 5% withholding tax on 8% annual interest effectively reduces your net rate to 7.6%. Over 5 years on LKR 1,000,000, that's a meaningful difference.
Reading the Growth Chart
The FD growth chart shows your deposit balance year-over-year, including the split between principal and accumulated interest. The steeper the curve in later years, the more compounding is working in your favour. This is the exponential growth that makes long-tenure FDs so powerful.