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FD

Investment

Fixed Deposit

A bank deposit instrument that earns a fixed interest rate for a predetermined period, offering capital protection and guaranteed returns.

Definition

A Fixed Deposit (FD) is a financial instrument offered by banks and non-banking financial companies (NBFCs) that provides investors with a higher rate of interest than a regular savings account, in exchange for keeping the money deposited for a fixed tenure.

The interest rate is locked in at the time of deposit and does not change during the tenure, regardless of market interest rate movements. This makes FDs a capital-protected, predictable-return instrument suitable for conservative investors.

FD tenures in India range from 7 days to 10 years. Interest can be received monthly, quarterly, annually, or at maturity (cumulative FDs).

Formula

Simple interest FD: Maturity Value = P + (P × r × t / 100)

Compound interest FD (quarterly compounding): Maturity Value = P × (1 + r / (4 × 100))^(4 × t)

Where P = principal, r = annual interest rate (%), t = tenure in years.

Most bank FDs use quarterly compounding.

Worked Example

You deposit ₹5,00,000 in an FD for 3 years at 7.5% per annum, compounded quarterly.

Maturity Value = 5,00,000 × (1 + 7.5 / 400)^12 = 5,00,000 × (1.01875)^12 ≈ ₹6,24,000

Interest earned = ₹1,24,000. However, if you are in the 30% tax bracket, you pay ₹37,200 in tax on this interest. Your post-tax return is approximately ₹86,800, an effective post-tax rate of ~5.25%. Compare this with PPF which offers completely tax-free returns. Use the FD vs RD calculator to compare scenarios.

Key Things to Know

  • TDS on FD: Banks automatically deduct TDS at 10% when annual FD interest exceeds ₹40,000. Submit Form 15G/15H if your income is below the taxable limit to avoid TDS deduction.
  • Senior citizen rates: Most banks offer 0.25–0.75% higher interest rates on FDs for senior citizens (age 60+). Some banks offer an additional special rate for super senior citizens (80+).
  • FD vs RD: An FD requires a lump sum deposit upfront. An RD allows monthly contributions. FD gives a slightly higher effective return if the lump sum is available from day one.
  • Sweep-in FD: Some banks offer a sweep-in or auto-sweep facility where excess savings account balance is automatically converted into FD, earning higher interest while remaining accessible.
  • DICGC insurance: The ₹5 lakh DICGC insurance limit applies per depositor per bank across all deposits, not per FD. Spreading large FDs across multiple banks increases effective insurance coverage.

Related Calculators

FD vs RD Calculator →Compare Fixed Deposit and Recurring Deposit returns on the same investment. See whether a lumpsum FD or monthly RD deposits earn more interest at the same rate.
Compound Interest Calculator →Calculate how your investment grows with compound interest. Get future value and see the impact of regular contributions — free and instant.

Related Terms

RDRecurring DepositTDSTax Deducted at SourceIRRInternal Rate of Return

Frequently Asked Questions

Yes. FD interest is fully taxable as 'Income from Other Sources' at your applicable income tax slab rate. Banks deduct TDS at 10% when annual interest exceeds ₹40,000 (₹50,000 for senior citizens). If you are in the 30% bracket, you will owe additional tax beyond what TDS covers.
A tax-saver FD has a 5-year lock-in and qualifies for Section 80C deduction up to ₹1.5 lakh per year. However, the interest earned is still fully taxable. Unlike PPF, it does not have EEE status, only the principal investment is deductible.
Yes, but banks levy a premature withdrawal penalty, typically 0.5–1% lower interest rate than what was contracted. Some banks offer no-penalty premature withdrawal for certain FD products.
FDs are low-risk instruments. Bank FDs are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to ₹5 lakh per depositor per bank (across all accounts and FDs combined). Corporate FDs carry higher risk and are not insured.
A cumulative FD reinvests the interest and pays the total (principal + compound interest) at maturity. A non-cumulative FD pays interest periodically, monthly, quarterly, or annually, useful for those who need regular income.