A fixed deposit pays a guaranteed rate for a fixed term. The return is modest compared with equity, but it is contractual rather than hoped-for, which makes FDs the standard home for money that must be there when you need it.
How to use the FD Calculator
- Enter the deposit amount
- Enter the annual interest rate offered
- Set the tenure
- Choose the compounding frequency — quarterly is standard for most Indian banks
Compounding frequency changes the outcome
Two deposits at the same headline rate can mature at different values, because of how often interest is added to the principal.
On ₹1,00,000 at 7% for 5 years:
- Annual compounding — about ₹1,40,255
- Quarterly compounding — about ₹1,41,478
- Monthly compounding — about ₹1,41,763
More frequent compounding means interest starts earning interest sooner. Most Indian banks compound FDs quarterly. When comparing offers, check the frequency as well as the rate — a slightly lower rate compounded monthly can beat a higher one compounded annually.
The tax position, which is often overlooked
FD interest is fully taxable as income at your slab rate. For someone in the 30% bracket, a 7% FD returns about 4.9% after tax — and with inflation near 6%, that is a real loss in purchasing power.
Banks deduct TDS at 10% once interest exceeds ₹40,000 in a financial year (₹50,000 for senior citizens), but TDS is not the final liability — you owe the difference up to your slab rate when filing.
This does not make FDs bad. It makes them appropriate for capital preservation and short-horizon goals, not for long-term wealth building.
Frequently asked questions
Is FD interest taxable?
Yes, fully, as income at your slab rate. Banks deduct TDS above ₹40,000 of interest per year (₹50,000 for senior citizens), but you owe the balance up to your slab when filing.
What happens if I withdraw early?
Most banks apply a penalty of 0.5–1% on the applicable rate, and pay interest at the rate for the period actually completed rather than the contracted one. Check the terms before locking in a long tenure.
Are fixed deposits safe?
Deposits are insured up to ₹5 lakh per bank per depositor under DICGC. Spread larger amounts across banks to stay within the cover.
FD or debt mutual fund?
FDs give a guaranteed return and full predictability. Debt funds can yield slightly more and are more tax-efficient over long holding periods, but the value fluctuates and the return is not guaranteed.