A fixed deposit (FD) is one of the safest and most popular ways to save money in India. It is a type of savings account where you deposit a lump sum for a fixed period at a fixed interest rate. In return, the bank or NBFC pays you guaranteed returns once the FD matures.
In simple terms, you lock in your money for a set duration, say 1 year, 3 years, or 5 years, and earn higher interest than a regular savings account.
When you open an FD, you choose:
Deposit amount – how much money you want to invest
Tenure – how long you want to keep it invested
Payout frequency – whether you want to receive interest monthly, quarterly, annually, or at maturity
The bank calculates interest based on these factors and credits it to your account as per your choice. When your FD matures, you receive your principal plus the total interest earned.
For example, if you invest ₹1 Lakh for 3 years at 7% annual interest, you will get around ₹1,22,500 at maturity (compounded quarterly).
Different banks and NBFCs offer various kinds of FDs to suit different needs.
This is the standard FD where interest is paid periodically or at maturity. You can choose tenure and payout frequency as per your convenience.
These have a 5-year lock-in period and qualify for tax deduction up to ₹1.5 Lakh under Section 80C of the Income Tax Act.
Cumulative FD: Interest is compounded and paid at maturity, which makes it ideal for long-term savers.
Non-Cumulative FD: Interest is paid out monthly, quarterly, or annually, which is better for those who need a regular income.
For individuals aged 60 years and above, banks usually offer 0.25%-0.75% higher interest rates.
Linked to your savings account, this FD automatically moves extra funds into a fixed deposit and back when your balance runs low.
Non-Resident Indians (NRIs) can invest in NRE, NRO, or FCNR FDs, earning guaranteed returns on foreign or Indian currency deposits.
Fixed deposits offer multiple advantages:
Guaranteed Returns: FD interest rates remain fixed throughout the tenure, regardless of market fluctuations.
Safety: FDs with banks are insured up to ₹5 Lakh per depositor under the DICGC (Deposit Insurance and Credit Guarantee Corporation).
Flexible Tenure: Choose from as short as 7 days to as long as 10 years.
Loan Against FD: You can borrow up to 90% of your FD amount in case of emergencies.
Senior Citizen Benefits: Higher interest rates and special plans.
Though FDs are considered safe, they do have some limitations:
Inflation Risk: FD returns may not always beat inflation.
Tax on Interest: Interest earned is taxable as per your income tax slab.
Penalty for Premature Withdrawal: Breaking your FD before maturity often reduces your interest rate or attracts a penalty.
Limited Liquidity: Your funds are locked for the chosen period unless withdrawn early.
You can open an FD in a few simple steps:
Step 1: Visit your bank’s branch or log in to its online portal.
Step 2: Select ‘Open Fixed Deposit’.
Step 3: Enter the deposit amount, tenure, and interest payout option.
Step 4: Verify details and confirm.
Documents usually required include PAN, Aadhaar, and a valid address proof.
The table below shows the FD interest rates offered by major banks in India:
|
Bank |
1-Year FD |
3-Year FD |
Senior Citizen (3-Year) |
|---|---|---|---|
|
SBI |
6.25% |
6.30% |
6.80% |
|
HDFC Bank |
6.25% |
6.45% |
6.95% |
|
ICICI Bank |
6.25% |
6.6% |
7.1% |
|
Axis Bank |
6.25% |
6.6% |
7.1% |
|
Bank of Baroda |
6.25% |
6.40% |
7.1% |
Fixed deposits are also subject to taxation. Here are the taxation rules on fixed deposits:
Interest Tax: The interest you earn on FDs is fully taxable under “Income from Other Sources.”
TDS (Tax Deducted at Source): If total FD interest exceeds ₹50,000 in a year (₹1 Lakh for senior citizens), the bank deducts 10% TDS.
Tax-Saving FDs: Only tax-saving fixed deposits qualify for 80C deduction (up to ₹1.5 Lakh).
|
Feature |
Fixed Deposit |
Savings Account |
Recurring Deposit |
|---|---|---|---|
|
Interest Rate |
Higher (6%-8%) |
Lower (2.5%-4%) |
Moderate (6%-7%) |
|
Liquidity |
Locked for tenure |
Fully liquid |
Locked, but regular deposits |
|
Returns |
Fixed & guaranteed |
Variable |
Fixed |
|
Risk |
Very low |
Very low |
Very low |
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A fixed deposit (FD) is a reliable investment option that guarantees steady returns with minimal risk. It’s best suited for conservative investors who want to ensure growth without market exposure.
However, always check the latest FD interest rates, tenure options, and tax rules before investing.
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Disclaimer
The starting interest rate depends on factors such as credit history, financial obligations, specific lender's criteria and Terms and conditions. Moneyview is a digital lending platform; all loans are evaluated and disbursed by our lending partners, who are registered as Non-Banking Financial Companies or Banks with the Reserve Bank of India.
This article is for informational purposes only and does not constitute financial or legal advice. Always consult with your financial advisor for specific guidance.
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