are fixed deposits compounded annually?
Hey Krishika, great question! Fixed deposits (FDs) can be compounded annually, quarterly, or even monthly; it all depends on the type of FD you choose and the bank’s compounding policy.
When you open a cumulative FD, the interest you earn isn’t paid out regularly. Instead, it’s added back to your principal amount i.e. compounding. If your FD is compounded annually, the bank calculates and adds the interest to your deposit once a year. The next year, you start earning interest on this new, higher amount.
I personally find annually compounded FDs great for long-term goals because your money quietly grows in the background without any effort.