FDR and DPS: How Fixed and Recurring Deposits Grow

Fixed deposits and recurring deposit schemes are among the most widely used savings products in Bangladesh and across South Asia. A fixed deposit receipt (FDR) locks a single amount for a fixed term at an agreed rate. A deposit pension scheme (DPS), also called a recurring deposit, collects a fixed instalment every month and pays a maturity amount at the end of the term.

Both are simple products, but how interest is compounded, how long the money is locked and how much is deducted at maturity make a real difference to what you receive.

How an FDR grows

A fixed deposit earns interest on the principal and, if interest is compounded, on interest already added. More frequent compounding gives a slightly higher return for the same quoted rate.

Banks may compound monthly, quarterly or not at all within the term, and may pay interest out periodically instead of reinvesting it. A three-year deposit of 200,000 at 6% compounded quarterly matures at 200,000 × (1.015)^12 = 239,123.63. Always check the product terms. The fixed deposit calculator lets you change each assumption.

How a DPS grows

A DPS is an annuity: equal deposits made every month, each earning interest for the months that remain.

DPS balance: deposits versus accumulated value

• Total deposited
• Accumulated value

Show the data

	Total deposited	Accumulated value
Year 1	120,000	123,926
Year 2	240,000	256,810
Year 3	360,000	399,301
Year 4	480,000	552,092
Year 5	600,000	715,929

Many banks quote a DPS as a fixed table of maturity amounts for each instalment size and term rather than a rate. Converting the table back to an implied annual rate is a good way to compare schemes. The DPS calculator works out maturity values from a rate.

Deductions at maturity

The maturity value calculated above is gross. In practice the amount credited may be lower because of:

• Tax deducted at source on interest, at rates set by tax law, which can depend on factors such as whether a tax identification number is provided;
• Excise duty or account charges on balances above certain thresholds, where applicable;
• Account maintenance fees.

Rates and thresholds are set by law and by each bank and change over time, so check the current rules with your bank. The ARBIMETRA deposit deductions calculator lets you enter the applicable rates to estimate the net amount. For instance, if tax of 10% were deducted from the one-year FDR interest above, the net interest would be 41,499.75 × 0.90 = 37,349.78 — an illustration only, not the current rate.

Early encashment

Breaking an FDR or closing a DPS before maturity usually reduces the return: the bank may pay a lower rate for the period completed or charge a penalty, and very early closure may earn no interest at all. If you might need the money, keep it in an emergency fund in a more accessible account rather than locking it away.

Real returns: comparing with inflation

A deposit’s interest is a nominal return. If prices rise faster than the after-tax interest rate, your purchasing power falls even though the balance grows. The inflation and real returns guide explains the calculation: real return ≈ (1 + nominal return) ÷ (1 + inflation) − 1.

Advantages and limitations

Advantages: predictable returns, low risk of loss when placed with a sound, regulated bank, simple to understand, and a DPS builds a saving habit through regular instalments.

Limitations: money is locked for the term, returns may not beat inflation after tax, rates are fixed so you do not benefit if market rates rise, and penalties apply for early withdrawal.

Common mistakes

• Comparing schemes by quoted rate without checking the compounding frequency.
• Treating the gross maturity value as the amount you will receive.
• Locking all savings in long-term deposits and having nothing accessible for emergencies.
• Ignoring inflation when judging whether a deposit is a good use of money.