What is a Fixed Deposit?
A fixed deposit, also known as FD, is the deposit made at a bank for a fixed term and a predetermined rate of interest.
A fixed-term investment differs from a deposit account. In a savings account the interest rate is comparatively lower than FD because money can be withdrawn at any time. While, with a fixed deposit you get a higher return. The amount has to stay in the account until maturity. However, withdrawals before maturity attract penalty and fine.
FDs are among the most conventional investments in India, as investors across social, economic, and other categories choose it to diversify. The minimum interest and FD rates vary from one bank to another.
The table shows the interest rate of FDs, less than 3 crore, provided by different banks, as on May 2026.
| Banks | General public | Senior citizen |
| State Bank of India | 3.05 to 6.05% | 3.55 to 6.95% |
| HDFC | 2.75 to 6.15% | 3.25 to 6.65% |
| Bank of Baroda | 3.5 to 6.45% | 4 to 6.95% |
How does a Fixed Deposit work in real life?
For example, you have ₹1,00,000 in your deposit account with 3% interest on it. If you invest this money in a fixed deposit for 2 years, the bank will give you 7% per year.
Now let’s understand how it works. You go to the bank or use their internet banking to open a fixed deposit. You choose the amount of money to put in, for how long, and also how you would like to receive your returns or income.
You can opt for either cumulative or non-cumulative deposits. In a cumulative deposit, you will receive your income after the end of the tenure and your interest will be calculated on your principal amount as well as accumulated interest. So, according to the example, If you invest ₹1,00,000 into a Fixed Deposit at 7% per year for 2 years, and the interest is compounded, you will get a return of around ₹1,14,490. This means you will earn ₹14,490.
In a non-cumulative deposit, you will receive your income in intervals. Hence, compounding on interest doesn’t take place. Therefore, as per the example, you will receive an income of ₹1750, if you choose to receive it every quarter.
Thus, the bank can pay you every month, every quarter, or at the end of the tenure depending on what you choose when you open the Fixed Deposit.
Plan your investment using Fixed Deposit Calculator
Types of Fixed Deposits in India
Banks in India provide multiple fixed deposit options to suit the investors. They are mentioned below.
Regular Fixed Deposits: Regular fixed deposits are the general fixed deposits. You invest in a FD for a fixed period and earn interest as income. The rate of interest varies across different banks. In case of senior citizens, the banks offer them an interest rate that’s 0.25% to 0.50% more than the regular Fixed Deposit rate.
Tax-Saving Fixed Deposits: Tax-saving fixed deposits is a type of FD where you can earn interest while staying non-taxable. This fixed deposit saves you from tax within a limit. The 80C, allows a deduction on income up to INR 1.5 lakhs per financial year. These deposits are locked in for 5 years which means withdrawal is not allowed within this period.
Flexi Fixed Deposits: Flexi fixed deposits are linked to your savings account. If the balance in your account exceeds a limit, the surplus money is automatically transferred to a Fixed Deposit. This gives you returns on your Fixed Deposit while still keeping your particular sum of money easy to access.
Corporate Fixed Deposits: Corporate fixed deposits are offered by small finance banks and non-banking financial institutions not by scheduled public or private banks. They often provide higher interest rates compared to other bank fixed deposits. They are riskier because they are not backed by the DICGC like bank fixed deposits are.
Benefits, Risks, and Investor Perspective
Benefits
- Fixed deposits are a safe way to invest your money in India. They provide a guaranteed predetermined rate of interest.
- The Deposit Insurance and Credit Guarantee Corporation insures bank fixed deposits up to ₹5 lakh per person who puts in money so your money is safe even if the bank has problems.
- Fixed deposits are different from stocks or mutual funds because you know how much money you will get back. The money you get is predictable and easy to calculate.
- It is convenient to start a fixed deposit. You can use the internet banking app or you can just visit the bank to open an account.
Risks
- The problem with fixed deposits is that the money you get back may not always be sufficient to beat inflation. If your fixed deposit is earning 7% but the inflation is 5%, you are only really getting 2% more.
- Another problem is that you are liable to pay tax on the interest earned from fixed deposits. The interest is added to your income. You have to pay tax based on the amount of returns. If you make a lot of money, you will have to pay a lot of tax on your fixed deposit interest.
- You can usually withdraw from a fixed deposit early but the problem is, you might have to incur a penalty or fine. This penalty is usually a percentage deducted from your interest rate.
Investor Perspective
Fixed Deposits are great for people who want to be safe with their money and do not want to take a lot of risks. They are also good for saving money for things you want to buy, like a phone or a vacation. Fixed Deposits are a place to put your money while you are deciding what to do with it for a longer time.
Fixed Deposits vs Other Investment Options
Many people think about FDs and other popular ways to invest their money before choosing where to put it. Each option has bad points. Let’s see how FDs compare to common choices:
| Parameter | Fixed Deposit | Stock | Mutual Fund | Public Provident Fund |
| Safety | High safety | Depends on company performance and market movement | Depends on market performance | High safety due to government back-up |
| Return | Fixed return | Based on company performance | Based on market fluctuation | Fixed by government |
| Degree of risk | Very low | High | Moderate to High | Very low |
| Liquidity | Penalised withdrawal | Easy to buy and sell | Easy to redeem | Limited withdrawal allowed |
| Tax benefit | Limited tax benefit | Limited tax benefit | Tax benefit in certain funds | Attractive tax benefit |
Smart Strategies to Use Fixed Deposits
Here are a few strategies to help you use fixed deposits to its full potential:
- Fixed Deposits Laddering: Do not put all your money into one long-term Fixed Deposit. Split your money across Fixed Deposits with different end dates. For example, you can create multiple Fixed Deposits with consecutive maturity periods. This increases liquidity while ensuring fixed return, as certain corpus mature from time to time.
- Analyse the options: Always check the interest rates of banks before you open a Fixed Deposit. Some small finance banks and other companies often give higher interest rates than big nationalised banks. Just make sure these banks are safe and have DICGC coverage.
- Be wise with your money: Try not to take out your money from Fixed Deposits before maturity. Some amount may get deducted as a penalty. Plan your FD based on your liquidity needs and keep sufficient emergency funds.
- Balancing risk: Use Fixed Deposits to make your investments safer. If you already invest in funds or stocks, having some of your savings in Fixed Deposits reduces the overall risk profile of your portfolio.
Final Thoughts
A Fixed Deposit is a way to grow your savings. You invest on a FD for a fixed period and receive a fixed rate in return as interest. You cannot take your money out during this time. That is why the bank gives you more money. Banks have types of fixed deposits that offer different benefits.
Fixed Deposits are safer than market-linked assets. The DICGC insures your money in the bank up to ₹5 lakh. However, compared to assets like stocks and mutual funds, returns are low. Overall Fixed Deposits are a choice for conservative, risk averse investors or those who want to diversify for portfolio stability.
FAQs
A fixed deposit is a type of investment. You invest an amount of money in it for a set period, for which you get a fixed interest rate of return. You can take it out early if required, for which you will be charged a small fee called a penalty. Fixed deposits are a way to save money. You know how much you’ll get back. It’s like a promise from the bank. The bank holds your money for a fixed period. You get an interest rate. It’s a safe way to earn extra money.
FDs are a good choice for guaranteed safe returns. Many banks offer interest rates from 6.5% to 8.5% in 2026. This makes FDs especially suitable for investors who are not risk-takers and for senior citizens. They are looking for safe returns from FDs.
Most banks let you withdraw your FD before it matures. You will likely be charged a penalty. This penalty means you might get more interest than what was promised. The penalty amount differs from bank to bank.
The interest on a Fixed Deposit is calculated in two ways: simple interest or compound interest. This usually depends on the bank and the type of Fixed Deposit you have. Compound interest provides better interest because the interest is added to the principal deposit at intervals, and earns interest on the total.
It really depends on your wants and risk taking abilities. Fixed Deposits are safer options, because the rate of interest is fixed. Whereas, mutual funds and stocks can give you money, but there is a possibility of loss, too. Some people like to have both. Fixed Deposits for safety, and mutual funds or stocks to try and grow their money. You should be aware of what you need and choose what is best for you.
Yes. The interest you earn on fixed deposits is fully taxable in India. The interest earned on fixed deposits is added to your income for the year. The tax on fixed deposits depends on your income tax slab. For example, if your total fixed deposit interest exceeds ₹40,000 in a year, the bank deducts tax. The bank also deducts Tax Deducted at Source (TDS).
