Annualised Return shows the effective yearly return earned on your FD investment after considering compounding and payout frequency.
It can be higher than the Interest Rate p.a. if the interest is compounded multiple times during the year, or lower if the interest is paid out periodically instead of being reinvested.
Annualised Return helps users compare FD plans more accurately by showing the actual yearly earnings after considering compounding and payout frequency. The maturity duration also impacts the annualised returns.
| Basis | Annualised Return Higher than Interest Rate p.a. | Annualised Return Lower than Interest Rate p.a. |
|---|---|---|
| Meaning | Annualised returns are higher because interest is added back to the FD and compounded | Annualised returns are lower because interest is paid to the investor and not compounded |
| Compounding Frequency | Monthly, Quarterly, Half-yearly, or Yearly | No compounding on paid-out interest |
| Payout Type | Maturity payout | Periodic interest payout |
| FD Type | Cumulative FD | Non-cumulative FD |
| Return Impact | Investment earns returns on principal + earned interest | Earned interest does not generate additional returns |
| Example | If you invest ₹1,00,000 in a Fixed Deposit offering 8.10% p.a. with quarterly compounding, the effective annualised return is 8.35%. At the end of 1 year, your investment would grow to approximately ₹1,08,350 instead of ₹1,08,100. At the end of 5 years, your investment would grow to approximately ₹1,49,300 instead of ₹1,40,500 with simple annual interest. | If you invest ₹1,00,000 in a scheme with 8.10% p.a. with monthly interest payout, the annualised return becomes approximately 7.95% because the interest is paid out every month instead of being compounded. You would receive around ₹675 per month as interest, totaling approximately ₹8,100 over a year, while your principal amount of ₹1,00,000 remains unchanged. |
| Issuer | Compounding Frequency |
|---|---|
| Bajaj Finance | Yearly |
| Mahindra Finance | Yearly |
| Shriram Finance | Yearly |
| Unity Small Finance Bank | Quarterly |
| Suryoday Small Finance Bank | Quarterly |
| Scenario | What Happens? |
|---|---|
| Two FDs show the same Interest Rate p.a. but different Annualised Returns | Annualised Returns differ based on compounding frequency and payout option selected |
| The issuer compounds interest more frequently | More frequent compounding results in higher Annualised Returns |
| I select a monthly or quarterly payout option | Annualised Returns will be lower because interest is paid out periodically instead of being reinvested into the FD |
| The investor wants higher yearly returns | Comparing Annualised Returns instead of only Interest Rate p.a. provides a better understanding of actual returns |
Last updated: 22 May 2026