rate of interest offered by the banks on deposits are annual rates i.e.10% p.a. generally interest is paid or compounded quarterly but if you want monthly payment of interest it is treated as advance payment because it is paid before the end of the quarter and banks' deduct some amount from your interest amount. for example on a deposit of Rs. 100000 @ 10% p.a.you will receive 2500 quarterly interest but in case of monthly payment you will receive approx Rs. 2475 during the quarter. difference amount Rs. 25/- is discounting charge.

If we make a fixed deposit with a bank and if the interest is chosen to be monthly credited the bank says interest amount is at the discounted amount. I want to know what does it mean by discount here.. what is the need of discounting the interest earned. please help me. Thanks.