Fixed Deposit (FD) — How It Works
A Fixed Deposit is the simplest investment in India: you lock a lump sum with a bank for a chosen tenure at a fixed rate, and receive the principal plus interest at maturity. Most banks compound interest quarterly. Bank FDs are insured by DICGC up to ₹5 lakh per bank per depositor.
FD Calculation Formula
Non-Cumulative: Annual interest = P × R, paid out quarterly
where P is the principal, R the annual rate, T the tenure in years, and n the compounding frequency (4 for quarterly, 12 for monthly, 1 for annual).
Cumulative vs Non-Cumulative FD
| Feature | Cumulative | Non-Cumulative |
|---|---|---|
| Interest | Reinvested & compounded | Paid out quarterly/monthly |
| Maturity | Larger lump sum | Principal + periodic payouts |
| Best for | Wealth growth | Regular income (retirees) |
| Effective yield | Higher (compounding effect) | Slightly lower |
Best FD Interest Rates in India (June 2026)
| Bank | 1-Year | 3-Year | 5-Year | Senior (+0.50%) |
|---|---|---|---|---|
| SBI | 6.80% | 6.75% | 6.50% | 7.30% |
| HDFC Bank | 7.25% | 7.00% | 7.00% | 7.75% |
| ICICI Bank | 7.25% | 7.00% | 7.00% | 7.75% |
| Axis Bank | 7.10% | 7.10% | 7.00% | 7.60% |
| Bank of Baroda | 7.05% | 7.15% | 6.50% | 7.65% |
| Post Office TD (5-yr) | — | — | 7.50% | — |
Rates are indicative. Verify on the bank's website before opening an FD.
TDS on FD Interest
Banks deduct 10% TDS on FD interest if it exceeds ₹40,000 per financial year (₹50,000 for senior citizens). If your PAN is not linked, TDS is 20%. The TDS is only an advance tax — you can adjust it in your ITR. To avoid TDS when your total income is below the basic exemption limit, submit Form 15G (or Form 15H if you are a senior citizen) at the start of the financial year.
Tax-Saver Fixed Deposit
A separate variant — the 5-year tax-saver FD — qualifies for a Section 80C deduction up to ₹1.5 lakh, but the interest is still taxable. It has a strict 5-year lock-in and no premature withdrawal. Rates are similar to regular 5-year FDs.