28/06/2025
✅ Why Quarterly Compounding is Used in FDs:
Bank Policy:
Almost all banks in India compound FD interest quarterly (every 3 months). This is mentioned in the FD terms and conditions.
Higher Effective Yield:
Quarterly compounding gives you higher returns than annual compounding because you start earning interest on the accumulated interest every 3 months.
Realistic Tax Calculation:
For Income Tax purposes, you must calculate the actual accrued interest based on how the bank calculates it, which is quarterly.
If you calculate annually, you’ll understate the accrued interest, which may result in under-reporting your taxable income.