Fixed Deposit Guide for India: Rates, Tax, TDS, Safety and How to Choose

A fixed deposit is the simplest way to earn assured returns, and also the simplest to get wrong. The headline rate matters less than three things: how interest is paid or compounded, how it is taxed, and whether the money will be locked when you need it.

How FD interest is calculated

Banks usually compound quarterly: A = P × (1 + r/4)^4t. A ₹5,00,000 deposit at 7% for 3 years grows to about ₹615,720, versus ₹6,05,000 with simple interest. On a non-cumulative FD interest is paid out monthly, quarterly or yearly instead and the payouts are slightly lower than compounding. Use the FD calculator to compare options.

How rates behave

FD rates follow the interest-rate cycle set by the Reserve Bank. When the repo rate falls, banks cut deposit rates, and new FDs offer less than old ones. Small finance banks and some NBFCs typically offer 0.5 to 1.5 percentage points more than large banks, with more credit risk. Senior citizens usually get an extra 0.25% to 0.50%. Always check the bank's own rate card for the tenure and amount you want, because rates are tiered.

Safety: how much is protected?

Deposits in scheduled banks (including small finance banks and co-operative banks that are DICGC members) are insured up to ₹5 lakh per depositor per bank, covering principal plus interest in all your accounts there. Beyond this, the safety depends on the bank. Company FDs are not covered by DICGC, so check the credit rating (AA or higher) before investing.

Tax and TDS

• Interest is added to your income and taxed at your slab rate, every year as it accrues, even on a cumulative FD that pays at maturity.
• TDS at 10% applies if interest from one bank exceeds ₹50,000 a year (₹1,00,000 for senior citizens). TDS is 20% if no PAN is given.
• Submit Form 15G (below 60) or 15H (senior citizens) if your total income is below the taxable limit, to avoid TDS.
• Even without TDS, the interest must be declared in your return. Check Form 26AS and AIS.
• A 5-year tax-saver FD gives a deduction up to ₹1.5 lakh under 80C in the old regime, with no premature withdrawal.

Smart ways to use FDs

Laddering

Split money across maturities, for example ₹2 lakh each in 1, 2, 3, 4 and 5-year FDs. As each matures, reinvest at the longest tenure. You get regular liquidity and keep reinvesting at current rates.

Sweep-in FDs

Many banks link savings and FD accounts so surplus above a limit moves to an FD automatically and returns when needed, earning more than savings interest while remaining liquid.

Premature withdrawal

Breaking an FD early usually costs 0.5% to 1% of the interest rate, and interest is paid at the rate for the period actually held. Plan tenures so you don't have to break them.

FD versus other options

Checklist before opening an FD

1. Compare rate cards of at least three banks for your tenure.
2. Check payout frequency and whether interest compounds.
3. Confirm premature-withdrawal terms.
4. Keep each bank's total under ₹5 lakh if you value insurance cover.
5. Nominate a beneficiary.

Frequently asked questions

How is FD interest calculated?

Most banks compound quarterly using A = P(1 + r/4)^(4t).

Is FD interest taxable?

Yes, at your slab rate every year. TDS of 10% applies when interest from a bank exceeds ₹50,000 (₹1 lakh for seniors).

Are FDs safe?

Bank deposits are insured up to ₹5 lakh per depositor per bank; company FDs have no such insurance.

What is Form 15G/15H?

A declaration that your income is below the taxable limit so the bank does not deduct TDS.

Can I break an FD early?

Yes, usually with a 0.5% to 1% penalty on the rate.

What is the best FD tenure?

Match the tenure to when you need the money, and ladder if unsure.

Last reviewed 8 November 2026. Rates, limits and rules change, so confirm figures with the official source before you act.