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Fixed Deposit

Investment

Fixed Deposit (FD)

A bank or post office savings instrument where a lump sum is deposited for a fixed tenure at a fixed interest rate, offering guaranteed, low-risk returns.

Definition

A fixed deposit is a savings instrument where a lump sum is deposited with a bank or post office for a predetermined tenure at a fixed, guaranteed interest rate. It's one of the most widely used low-risk savings options in India, valued for its predictability and capital safety, in contrast to market-linked investments where returns fluctuate.

Interest typically compounds quarterly, though the exact frequency varies by bank, and the deposited amount is locked for the chosen tenure, with premature withdrawal usually triggering a rate reduction or penalty. The Fixed Deposit Calculator computes maturity value based on the specific rate, tenure, and compounding frequency chosen.

Formula

Maturity Value = Principal × (1 + r/n)^(n × t)

Where r is the annual interest rate, n is the compounding frequency per year, and t is the tenure in years.

Worked Example

₹5,00,000 deposited in an FD at 7.25% annual interest, compounded quarterly, for 5 years:

Maturity Value = ₹5,00,000 × (1 + 0.0725/4)^(4×5) ≈ ₹7,17,847

That's roughly ₹2,17,847 in interest earned over the tenure, fully taxable as income in the year it accrues (or is paid, depending on the chosen interest payout option).

Key Things to Know

Interest is fully taxable, with TDS applying above a threshold. Unlike PPF's tax-free interest, FD interest adds directly to your taxable income each year.
Premature withdrawal usually costs you, either a lower rate or a fee. FDs aren't designed for frequent access, plan the tenure around when you'll actually need the funds.
Senior citizens typically get a rate premium. Many banks offer an additional 0.25-0.5% for senior citizen depositors on the same tenure.
Quarterly compounding is standard but not universal. Check the specific compounding frequency when comparing FD rates across banks, since it affects the actual maturity value even at an identical stated rate.
A cumulative or non-cumulative payout option changes cash flow, not the total return meaningfully. Non-cumulative FDs pay interest periodically rather than at maturity, useful for income needs, while cumulative FDs compound and pay the full amount at the end.

Related Calculators

Fixed Deposit Calculator →Calculate your FD maturity amount, total interest, and payout schedule instantly. Supports monthly and cumulative interest options for Indian bank FDs.

Frequently Asked Questions

What's the difference between a fixed deposit and a recurring deposit?

An FD requires a one-time lump sum deposit upfront, while a recurring deposit (RD) accepts fixed monthly instalments over the tenure. Both offer similar guaranteed interest rates, the main difference is how the money goes in, not how it grows.

Can I withdraw my fixed deposit before the tenure ends?

Yes, but premature withdrawal typically comes with a penalty, either a reduced interest rate or a fee, so it's not meant to be a fully liquid instrument, only accessed early when genuinely necessary.

Is FD interest taxable?

Yes, FD interest is fully taxable as income at your applicable slab rate, and banks deduct TDS if interest earned crosses a specified annual threshold, unlike some tax-saving instruments with exempt interest.

Does FD interest compound, or is it simple interest?

Most FDs compound interest, typically quarterly, meaning interest earned in one quarter starts earning its own interest in subsequent quarters, producing a higher effective return than simple interest at the same stated rate.

Are FD rates the same across all banks?

No, rates vary by bank, tenure, and depositor category, senior citizens typically get a higher rate (often 0.25-0.5% more) than the standard rate offered to other depositors.