Quarterly Compounding
Savings & DepositsQuarterly compounding means interest is calculated and added to principal every 3 months. Most Indian bank FDs use quarterly compounding, giving a slightly higher effective yield than annual compounding at the same stated rate.
In detail
At 7% on Rs 1L for 3 years: Annual compounding = Rs 1,22,504. Quarterly = Rs 1,23,144 (Rs 640 extra). Monthly = Rs 1,23,302. The difference grows with rate and tenure. Effective Annual Rate at 7% quarterly = 7.19%.
Formula
Maturity = P x (1 + r/4)^(4 x t)
Effective Annual Rate = (1 + r/4)^4 - 1
At 7%: EAR = (1.0175)^4 - 1 = 7.19%
Real-life example
🇮🇳 India example
Bank A: 7% annual compounding. Bank B: 7% quarterly. On Rs 5L for 5 years: Bank A = Rs 7,01,276. Bank B = Rs 7,08,492. Rs 7,216 extra just from compounding frequency.
Frequently asked questions
Does my bank FD use quarterly compounding? ▼
Most Indian banks use quarterly compounding for FDs. Post Office time deposits use annual compounding. Check the FD certificate or terms and conditions for exact frequency.