What is a Fixed Deposit (FD)?
A Fixed Deposit is a financial instrument offered by banks and NBFCs where you deposit a lump sum for a fixed period at a predetermined interest rate. FDs are one of the safest investment options in India, backed by deposit insurance up to ₹5 lakh per depositor per bank (under DICGC).
FDs are ideal for risk-averse investors, retirees looking for regular income, or anyone wanting to park funds safely for a specific goal. While returns are lower than equity investments, the guaranteed nature of FD returns makes them an essential part of any diversified portfolio.
Latest FD Interest Rates — Major Banks (March 2026)
Here's a comparison of current FD interest rates from India's leading banks:
General Customer Rates
| Bank | 1 Year | 2 Years | 3 Years | 5 Years |
|---|---|---|---|---|
| SBI | 6.80% | 7.00% | 6.75% | 6.50% |
| HDFC Bank | 6.60% | 7.10% | 7.10% | 7.00% |
| ICICI Bank | 6.70% | 7.10% | 7.00% | 7.00% |
| Axis Bank | 6.70% | 7.10% | 7.10% | 7.00% |
| Kotak Mahindra | 6.70% | 7.15% | 7.10% | 6.90% |
| Bank of Baroda | 6.85% | 7.05% | 6.75% | 6.50% |
| PNB | 6.80% | 7.00% | 6.75% | 6.50% |
Senior Citizen Rates (Additional 0.25-0.50%)
| Bank | 1 Year | 2 Years | 3 Years | 5 Years |
|---|---|---|---|---|
| SBI | 7.30% | 7.50% | 7.25% | 7.50% |
| HDFC Bank | 7.10% | 7.60% | 7.60% | 7.50% |
| ICICI Bank | 7.20% | 7.60% | 7.50% | 7.50% |
Note: Rates are indicative as of March 2026. Please verify with respective banks before making investment decisions.
How FD Interest is Calculated
Banks calculate FD interest using the compound interest formula. Most banks compound interest quarterly:
A = P × (1 + r/n)n×t
Where:
- A = Maturity amount
- P = Principal (deposit amount)
- r = Annual interest rate (as decimal)
- n = Number of compounding periods per year (4 for quarterly)
- t = Tenure in years
Example: ₹5 Lakh FD at 7% for 3 Years (Quarterly Compounding)
- P = ₹5,00,000
- r = 0.07
- n = 4 (quarterly)
- t = 3 years
A = 5,00,000 × (1 + 0.07/4)4×3
A = 5,00,000 × (1.0175)12
A = 5,00,000 × 1.2314 = ₹6,15,699
Interest earned = ₹1,15,699
Calculate your exact FD returns with our FD calculator.
How Compounding Frequency Affects Returns
The more frequently interest is compounded, the higher your returns. Here's how ₹10 lakh at 7% grows over 5 years with different compounding:
| Compounding | Frequency | Maturity Amount | Interest Earned |
|---|---|---|---|
| Annual | Once/year | ₹14,02,552 | ₹4,02,552 |
| Half-yearly | Twice/year | ₹14,10,598 | ₹4,10,598 |
| Quarterly | 4 times/year | ₹14,14,778 | ₹4,14,778 |
| Monthly | 12 times/year | ₹14,17,625 | ₹4,17,625 |
The difference between annual and monthly compounding over 5 years is ₹15,073. While this may seem small, it becomes significant with larger deposits and longer tenures.
Types of Fixed Deposits
1. Regular FD
Standard FD with a fixed tenure. Interest can be paid monthly, quarterly, or at maturity. No tax benefit on the invested amount.
2. Tax-Saving FD
5-year lock-in FD that qualifies for tax deduction under Section 80C (up to ₹1,50,000). Cannot be withdrawn prematurely. Interest is still taxable.
3. Senior Citizen FD
Higher interest rates (0.25-0.50% extra) for depositors aged 60+. Some banks offer super senior citizen rates (80+) with an additional 0.25%.
4. Flexi FD / Sweep-in FD
Linked to your savings account. Surplus funds above a threshold are automatically converted to FD. Provides higher returns than savings account while maintaining liquidity.
5. Corporate FD
FDs offered by NBFCs and companies. Higher rates than bank FDs but carry higher risk as they're not insured by DICGC. Only invest in AAA-rated corporate FDs.
FD vs Other Safe Investment Options
| Feature | Bank FD | PPF | Debt Mutual Fund | RBI Bonds |
|---|---|---|---|---|
| Returns | 6.5-7.5% | 7.1% | 6-8% | 7.15% |
| Lock-in | Flexible | 15 years | None | 7 years |
| Tax Benefit | 80C (5yr FD) | 80C + EEE | None | None |
| Risk | Very Low | Zero | Low | Zero |
| Liquidity | Moderate | Low | High | Low |
| Interest Tax | Slab rate | Tax-free | Slab rate | Slab rate |
Tax on FD Interest: What You Need to Know
FD interest is fully taxable as per your income tax slab. Key points:
- TDS: Banks deduct 10% TDS if interest exceeds ₹40,000/year (₹50,000 for senior citizens)
- Form 15G/15H: Submit at the start of each financial year to avoid TDS if your total income is below the taxable limit. Form 15G is for individuals under 60, Form 15H for senior citizens.
- Accrual basis: Interest is taxable in the year it accrues, even if you receive it at maturity. This means for a cumulative FD, you need to declare interest annually.
- Higher TDS: If you don't provide PAN, TDS is deducted at 20% instead of 10%
Use our income tax calculator to see how FD interest affects your total tax liability.
Tips to Maximize FD Returns
- Ladder your FDs: Instead of one large FD, split into multiple FDs with staggered maturities (1, 2, 3, 5 years). This gives you liquidity while earning higher rates on longer-tenure FDs.
- Choose quarterly compounding: Always opt for cumulative FD with quarterly compounding for maximum returns (unless you need regular income).
- Compare across banks: Don't default to your salary account bank. Small finance banks often offer 1-1.5% higher rates.
- Time your FDs: Banks temporarily offer higher rates during festivals or when they need deposits. Watch for special FD schemes.
- Use auto-renewal wisely: Don't let FDs auto-renew if rates have changed. Review and re-invest manually for the best available rate.
Frequently Asked Questions
Among major banks, small finance banks and NBFCs typically offer the highest FD rates (7.5-8.5%). Among large banks, HDFC, ICICI, and Kotak offer competitive rates of 7-7.15% for 2-3 year tenures. Senior citizens get an additional 0.25-0.50%.
FD interest is calculated using compound interest: A = P × (1 + r/n)^(n×t), where P is principal, r is annual rate, n is compounding frequency (usually 4 for quarterly), and t is tenure in years. Use our FD calculator for instant calculations.
Yes, FD interest is fully taxable as per your income tax slab. Banks deduct 10% TDS if annual interest exceeds ₹40,000 (₹50,000 for senior citizens). Submit Form 15G/15H to avoid TDS if your total income is below the taxable limit.
Yes, most FDs can be broken prematurely with a penalty of 0.5-1% reduction in interest rate. Tax-saving FDs (5-year lock-in) cannot be broken early. Some banks also have minimum lock-in periods for certain FD types.
FD laddering is a strategy where you split your investment across multiple FDs with different maturity dates (e.g., 1, 2, 3, and 5 years). This provides regular liquidity while earning higher rates on longer-tenure FDs, and protects against interest rate changes.