What is a Fixed Deposit (FD)?
A Fixed Deposit (FD) is a financial product offered by banks and Non-Banking Financial Companies (NBFCs) where you deposit a lump sum amount for a predetermined tenure at a fixed interest rate. At the end of the tenure (maturity), you receive your principal back along with the accumulated interest.
FD is India's most popular investment product because it offers guaranteed returns with zero market risk. Unlike mutual funds or stocks, your money is not subject to market fluctuations. Bank FDs are also insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to ₹5 lakhs per depositor per bank.
FD Interest Calculation Formula
Where:
P = Principal amount deposited
r = Annual interest rate (as decimal, e.g., 7% = 0.07)
n = Number of times interest is compounded per year
(Annual=1, Semi-annual=2, Quarterly=4, Monthly=12)
t = Tenure in years
Example: ₹1,00,000 at 7% for 5 years:
Annual compounding (n=1):
= 1,00,000 × (1 + 0.07)^5 = ₹1,40,255
Quarterly compounding (n=4):
= 1,00,000 × (1 + 0.07/4)^20 = ₹1,41,478
Monthly compounding (n=12):
= 1,00,000 × (1 + 0.07/12)^60 = ₹1,41,763
More frequent compounding = More returns!
Current Best FD Interest Rates in India — May 2026
Major Public Sector Banks
| Bank | 1 Year | 2 Years | 3 Years | 5 Years | Senior Citizen |
|---|---|---|---|---|---|
| SBI | 6.80% | 6.80% | 6.75% | 6.50% | +0.50% |
| Bank of Baroda | 6.85% | 6.85% | 7.05% | 6.80% | +0.50% |
| Punjab National Bank | 6.80% | 6.80% | 7.00% | 6.50% | +0.50% |
| Canara Bank | 6.85% | 6.85% | 6.80% | 6.70% | +0.50% |
Major Private Sector Banks
| Bank | 1 Year | 2 Years | 3 Years | 5 Years | Senior Citizen |
|---|---|---|---|---|---|
| HDFC Bank | 6.60% | 7.00% | 7.00% | 7.00% | +0.50% |
| ICICI Bank | 6.70% | 7.00% | 7.00% | 7.00% | +0.50% |
| Axis Bank | 6.70% | 7.10% | 7.10% | 7.00% | +0.75% |
| Kotak Mahindra Bank | 7.10% | 7.10% | 7.10% | 6.20% | +0.50% |
| IndusInd Bank | 7.50% | 7.25% | 7.25% | 7.25% | +0.50% |
Small Finance Banks (Higher Rates)
| Bank | 1 Year | 3 Years | 5 Years | Senior Citizen |
|---|---|---|---|---|
| Unity Small Finance Bank | 9.00% | 9.00% | 8.50% | +0.50% |
| Suryoday Small Finance | 8.25% | 8.60% | 8.25% | +0.50% |
| Jana Small Finance Bank | 8.25% | 8.50% | 8.25% | +0.50% |
| Ujjivan Small Finance | 7.20% | 8.25% | 7.90% | +0.50% |
⚠️ Higher rates from small finance banks come with slightly higher risk. DICGC insurance ₹5L applies here too.
Post Office Time Deposits (Government Backed — 100% Safe)
| Tenure | Interest Rate | Compounding |
|---|---|---|
| 1 Year | 6.90% | Annual |
| 2 Years | 7.00% | Annual |
| 3 Years | 7.10% | Annual |
| 5 Years (Tax Saving) | 7.50% | Annual |
Post Office FDs are backed by Government of India — completely safe even above ₹5 lakhs!
FD Maturity Amount — Comparison at Different Rates
| Principal | Tenure | At 6.5% | At 7.0% | At 7.5% | At 8.0% | At 9.0% |
|---|---|---|---|---|---|---|
| ₹1 Lakh | 1 Year | ₹1,06,500 | ₹1,07,000 | ₹1,07,500 | ₹1,08,000 | ₹1,09,000 |
| ₹1 Lakh | 3 Years | ₹1,20,795 | ₹1,22,504 | ₹1,24,230 | ₹1,25,971 | ₹1,29,503 |
| ₹1 Lakh | 5 Years | ₹1,37,009 | ₹1,40,255 | ₹1,43,563 | ₹1,46,933 | ₹1,53,862 |
| ₹5 Lakh | 5 Years | ₹6,85,045 | ₹7,01,275 | ₹7,17,815 | ₹7,34,665 | ₹7,69,310 |
| ₹10 Lakh | 5 Years | ₹13,70,090 | ₹14,02,550 | ₹14,35,630 | ₹14,69,330 | ₹15,38,620 |
Tax on FD Interest — Important Rules
TDS (Tax Deducted at Source)
- Bank deducts TDS if annual FD interest exceeds ₹40,000 (₹50,000 for senior citizens)
- TDS rate: 10% if PAN is submitted, 20% if PAN not submitted
- TDS applies across all FDs in the same bank, not per FD
Tax in Your ITR
- FD interest is added to your income under "Income from Other Sources"
- Taxed at your income tax slab rate (5%, 20%, or 30%)
- TDS already deducted is given as credit against your tax liability
How to Avoid TDS
- Submit Form 15G (below 60 years) or Form 15H (senior citizens) to bank if total income is below taxable limit
- This is a declaration that your income is below the taxable limit — bank will not deduct TDS
- Submit at the beginning of each financial year
FD vs Other Investment Options
| Investment | Returns | Safety | Tax | Liquidity | Recommended For |
|---|---|---|---|---|---|
| Bank FD | 6.5-7.5% | Very High | Slab rate | Good (premature allowed) | Short-term, risk-averse |
| Post Office FD | 6.9-7.5% | Highest (Govt) | Slab rate | After 6 months | Maximum safety seekers |
| PPF | 7.1% | Highest (Govt) | Tax-free EEE | Partial after 7yr | Long-term tax-free savings |
| NSC | 7.7% | Highest (Govt) | Taxable (80C) | 5 year lock-in | 5-year secure savings |
| SCSS | 8.2% | Highest (Govt) | Taxable | Quarterly interest | Senior citizens |
| Debt Mutual Fund | 7-8% | High | Slab rate | Any time (T+1) | Short-medium term |
| Equity Mutual Fund | 12-15% | Moderate | LTCG 12.5% | Any time (T+1) | 5+ year goals |
Special FD Types
Tax Saving FD (5 Year Lock-in)
- Eligible for Section 80C deduction up to ₹1.5L per year (old regime)
- 5-year lock-in period — cannot break before maturity
- Interest is still taxable even though principal qualifies for 80C
- Available with most major banks and post offices
Senior Citizen FD
- Additional 0.25-0.75% interest over regular FD rates
- Higher TDS exemption limit of ₹50,000 per year
- Some banks offer monthly/quarterly interest payout for regular income
NRI FD (NRE and NRO)
- NRE FD: Tax-free in India, can repatriate freely, rates similar to regular FD
- NRO FD: Taxable in India, limited repatriation, slightly lower rates
Frequently Asked Questions
Q: What happens to FD if the bank fails?
DICGC insures your bank deposits up to ₹5 lakhs per depositor per bank. If the bank fails, you get back up to ₹5 lakhs within 90 days. For amounts above ₹5L, you join the priority creditors queue but full recovery is not guaranteed — spread large amounts across multiple banks.
Q: Can I get monthly interest from FD?
Yes, most banks offer monthly or quarterly interest payout option. Note that the effective annual yield with monthly payout is slightly lower than the cumulative (compound) option because you withdraw interest early. Monthly payout is good for people needing regular income (retirees).
Q: Is FD better than SIP for 5 years?
Historically, equity SIP has delivered much better returns (12-15%) than FD (7%) over 5+ years. However, SIP returns are not guaranteed while FD guarantees returns. For money you cannot afford to lose (emergency fund, specific planned expense), FD is better. For wealth creation with some risk tolerance, SIP is mathematically superior.