How to Calculate Fixed Deposit (FD) Returns and Employee Gratuity

Fixed Deposits (FDs) and Employee Gratuity are two cornerstones of long-term financial planning for salaried households. While banks quote an annual nominal interest rate on FDs, cumulative deposits actually compound quarterly—meaning your effective annual yield is higher than the headline rate. Similarly, employee gratuity follows a strict statutory formula where a single extra month of service can add an entire year to your payout calculation.

Part 1: Calculating Fixed Deposit (FD) Maturity Returns

For cumulative Fixed Deposits with tenures of 6 months or longer, most commercial banks compound interest every quarter (4 times a year) so the interest earned in Quarter 1 starts earning interest in Quarter 2.

The Quarterly Compound FD Formula

Where:

• A = Maturity amount at the end of the tenure
• P = Principal deposit amount
• r = Annual nominal interest rate in decimal form (e.g., 7.20% = 0.072)
• n = Compounding frequency per year (n = 4 for quarterly compounding)
• t = Tenure in years

Worked FD Example

If you deposit ₹5,00,000 for 3 years at 7.20% p.a. compounded quarterly (n = 4):

1. Quarterly rate = 0.072 ÷ 4 = 0.018 (1.8% per quarter)
2. Total quarters = 4 × 3 = 12 quarters
3. Maturity Value (A) = ₹5,00,000 × (1.018)^{12} = ₹6,19,863
4. Total Interest Earned: ₹1,19,863 (compared to ₹1,08,000 under simple interest—an extra ₹11,863 from compounding).

Check custom tenures in days, months, or years using the EverySolve Fixed Deposit Calculator.

Part 2: Calculating Employee Gratuity Payouts

Under the Payment of Gratuity Act, 1972, an employee who completes 5 or more years of continuous service with an organization employing 10 or more people is entitled to a lump-sum gratuity benefit upon resignation, retirement, or superannuation.

1. Employees Covered Under the Gratuity Act (Divisor of 26)

The Act treats a working month as 26 working days (excluding 4 Sundays) and awards 15 days' wages for every completed year of service:

• 6-Month Rounding Rule: For covered employees, if the fraction of service in the final year exceeds 6 months, it is rounded up to the next full year. For example, 7 years and 7 months is counted as 8 years, whereas 7 years and 4 months is counted as 7 years.

2. Employees Not Covered Under the Act (Divisor of 30)

If an employer is not covered under the Act but pays gratuity voluntarily under contract, the divisor is 30 instead of 26, and fractional months are not rounded up.

Worked Gratuity Example

Suppose your last drawn Basic + Dearness Allowance (DA) is ₹65,000/month and you resign after 8 years and 8 months (rounded to 9 years):

Run your exact basic salary and service duration in the EverySolve Gratuity Calculator.