Fixed Deposit (FD) — Complete Guide for 2026
A Fixed Deposit (FD) is one of the safest investment options offered by banks and financial institutions in India. Money is deposited for a fixed period at a predetermined interest rate, earning stable, guaranteed returns unaffected by market volatility. Banks like SBI, HDFC Bank, ICICI Bank and small finance banks currently offer FD rates ranging from 6.25% to 9.10%. Senior citizens receive an additional 0.25%–0.75% interest. This guide covers everything — meaning, types, rates, tax impact, risks, and how to choose the best FD in 2026.
What is a Fixed Deposit (FD)?
A Fixed Deposit (FD) is a financial product where a lump-sum amount is deposited with a bank or financial institution for a fixed period (tenure) at a predetermined annual interest rate. The deposited amount earns guaranteed returns until maturity — regardless of market conditions, RBI policy changes, or economic cycles. At the end of the tenure, you receive the original principal plus all accumulated interest. FDs are considered one of the safest investments in India, suitable for conservative investors, senior citizens, and anyone seeking stable income.
How Does a Fixed Deposit Work?
When you open an FD, you agree to lock in a fixed sum of money with your bank for a specific period — anywhere from 7 days to 10 years. In return, the bank pays you a fixed interest rate that is higher than a regular savings account. Here is the step-by-step flow:
- 1️⃣You deposit a lump sum: Choose the amount (minimum varies by bank — as low as ₹1,000 at SBI), tenure, and interest payout option (cumulative or monthly/quarterly).
- 2️⃣Bank locks your rate: The agreed rate stays fixed for the entire tenure — even if RBI cuts repo rates and other FD rates fall, your existing FD keeps earning the locked-in rate.
- 3️⃣Interest compounds quarterly: Most Indian banks compound FD interest quarterly. This means your effective yield is slightly higher than the stated annual rate.
- 4️⃣Maturity and payout: On the maturity date, you receive principal + interest. You can choose to auto-renew, transfer to savings account, or reinvest in a new FD.
FD Maturity Formula
The maturity amount for quarterly-compounded FDs (used by most Indian banks):
📌 Worked Example — ₹1 Lakh at 7.5% for 2 Years (Quarterly Compounding)
Use the Arthzo FD Calculator to compute exact maturity amounts for any combination of principal, rate, tenure, and compounding frequency — instantly and free.
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Open Free FD Calculator →Types of Fixed Deposits in India
Indian banks offer several variants of fixed deposits designed for different investor profiles and financial goals.
Latest Fixed Deposit Interest Rates — May 2026
| Bank | Regular FD Rate | Senior Citizen Rate | Best Tenure | Min. Deposit |
|---|---|---|---|---|
| State Bank of India | 6.50% | 7.05% | 444 Days | ₹1,000 |
| HDFC Bank | 6.50% | 7.00% | 3 Years | ₹5,000 |
| ICICI Bank | 6.40% | 7.10% | 15–24 Months | ₹10,000 |
| Axis Bank | 6.50% | 7.00% | 1–2 Years | ₹5,000 |
| Bank of Baroda | 6.50% | 7.15% | 400 Days | ₹1,000 |
| IDFC First Bank | 7.50% | 8.00% | 18–24 Months | ₹10,000 |
| IndusInd Bank | 7.75% | 8.25% | 12–24 Months | ₹10,000 |
| Unity Small Finance Bank | 9.00% | 9.50% | 1 Year | ₹1,000 |
| Suryoday SFB | 8.50% | 9.00% | 5 Years | ₹1,000 |
| Bajaj Finance (NBFC) | 8.05% | 8.30% | 24–36 Months | ₹15,000 |
For a complete comparison of 25+ banks with tenure-wise rates, senior citizen rates, and safe investment strategies, see our Best Fixed Deposit Rates in India 2026 guide.
Benefits and Risks of Fixed Deposits
FD vs Savings Account vs RD vs Mutual Funds
Don't choose only FD or only mutual funds. A balanced portfolio for conservative investors: 60% FD + 30% debt mutual funds + 10% equity. For moderate investors: 30% FD + 40% debt MF + 30% equity. FD provides the safe, liquid foundation; mutual funds provide growth to beat inflation.
Tax on Fixed Deposit Interest — Complete Guide
FD interest is fully taxable as "Income from Other Sources" and added to your total income. The tax rate depends on your income slab — 5%, 20%, or 30%. Banks deduct TDS automatically above certain thresholds.
| Category | TDS-Free Limit | TDS Rate (with PAN) | TDS Rate (no PAN) | How to Avoid TDS |
|---|---|---|---|---|
| General depositors | ₹40,000 / year | 10% | 20% | Form 15G (if total income below exemption) |
| Senior citizens (60+) | ₹50,000 / year | 10% | 20% | Form 15H (if estimated tax is nil) |
Real Tax Impact by Income Slab
| Income Slab | Tax Rate | FD at 7.5% | Post-Tax Yield | vs PPF (7.1% tax-free) |
|---|---|---|---|---|
| Up to ₹3L (Nil) | 0% | 7.50% | 7.50% | FD better |
| ₹3L–₹7L (5% slab) | 5% | 7.50% | 7.13% | FD marginally better |
| ₹7L–₹10L (10% slab) | 10% | 7.50% | 6.75% | FD comparable |
| ₹10L–₹12L (15%) | 15% | 7.50% | 6.38% | PPF better |
| Above ₹15L (30%) | 30% | 7.50% | 5.25% | PPF clearly better |
If you are in the 30% tax bracket, consider PPF (7.1% tax-free), ELSS mutual funds, or debt mutual funds (indexation benefit) as more tax-efficient alternatives to FD for long-term investing. FD makes more sense for short-term goals or emergency funds regardless of tax bracket.
Senior Citizen Fixed Deposits — Higher Rates & Monthly Income
Banks in India are legally required by RBI to offer additional interest of at least 0.25%–0.75% per annum to senior citizens (age 60+) over regular FD rates. Some banks also offer a "super senior citizen" category for those aged 80+ with an extra 0.10%. For retirees, FDs offer predictable monthly or quarterly interest income alongside capital safety.
| Bank / Institution | Senior Citizen Rate | Best Tenure | Extra Over Regular |
|---|---|---|---|
| Unity Small Finance Bank | 9.50% | 1 Year | +0.50% |
| Suryoday SFB | 9.00% | 5 Years | +0.50% |
| Jana Small Finance Bank | 8.50% | 1–3 Years | +0.50% |
| IndusInd Bank | 8.25% | 12–24 Months | +0.50% |
| IDFC First Bank | 8.00% | 18–24 Months | +0.50% |
| ICICI Bank | 7.10% | 3–5 Years | +0.70% |
| Bank of Baroda | 7.15% | 400 Days | +0.65% |
| SBI (We-Care Scheme) | 7.05% | 5–10 Years | +0.55% |
Choose non-cumulative FD for monthly income. Submit Form 15H at the start of each financial year to avoid TDS if your total income is below the taxable limit. For amounts above ₹5 lakh, spread across two or more banks to maximize DICGC protection.
Tax-Saving Fixed Deposit — Section 80C Deduction
A Tax-Saving FD is a special category of fixed deposit with a mandatory 5-year lock-in that qualifies for income tax deduction under Section 80C of the Income Tax Act. You can invest up to ₹1.5 lakh per financial year and deduct the full amount from your taxable income.
- • Section 80C deduction up to ₹1.5 lakh
- • Fixed interest for 5 years
- • Available at all major banks
- • Joint account allowed (first holder gets deduction)
- • Minors can invest via guardian
- • 5-year mandatory lock-in (no premature withdrawal)
- • Cannot pledge as loan collateral
- • Interest earned is fully taxable
- • Small finance banks generally NOT eligible
- • Auto-renewal to regular FD after 5 years
Tax-Saving FD Rates at Major Banks — May 2026
| Bank | 5-Year FD Rate | Senior Citizen Rate | Section 80C |
|---|---|---|---|
| State Bank of India | 6.50% | 7.00% | ✓ Eligible |
| HDFC Bank | 6.50% | 7.00% | ✓ Eligible |
| ICICI Bank | 6.40% | 7.10% | ✓ Eligible |
| Axis Bank | 6.50% | 7.00% | ✓ Eligible |
| Bank of Baroda | 6.50% | 7.15% | ✓ Eligible |
Note: Compare tax-saving FDs with PPF (7.1%, fully tax-free) and ELSS mutual funds before investing. For investors in the 30% slab, PPF often provides better post-tax returns despite the same or lower rate.
How to Open a Fixed Deposit in India
Opening an FD takes less than 5 minutes online or 15 minutes at a branch. Here is the step-by-step process:
Choose the right bank and tenure
Compare rates using the Arthzo FD Calculator. Match tenure to your financial goal — short-term (under 1 year) for liquidity, long-term (3–5 years) to lock in high rates.
Keep KYC documents ready
Aadhaar card, PAN card, passport-size photo, and a savings account at the same bank (for online FD). Most banks let you open FD instantly if you have a savings account.
Choose cumulative vs non-cumulative
Cumulative: interest compounds and is paid at maturity — best for growth. Non-cumulative: interest paid monthly/quarterly — best for regular income (retirees).
Set auto-renewal (optional)
Instruct the bank to auto-renew on maturity — this ensures your money continues earning interest without a gap if you're unavailable on the maturity date.
Submit Form 15G/15H (if applicable)
If your total annual income is below the taxable limit, submit Form 15G (general) or 15H (senior citizens) at the start of each financial year to avoid TDS deduction.
Download FD certificate or receipt
Save the FD certificate / receipt. For nominee registration, do it at the time of opening — this ensures hassle-free claim settlement in unforeseen circumstances.
FD Premature Withdrawal Rules & Penalty
Most banks allow premature withdrawal after a minimum period (usually 7–30 days from the date of deposit). The bank reduces the applicable interest rate by 0.5%–1% as a penalty.
| Withdrawal Scenario | Penalty | Interest Earned | Alternative |
|---|---|---|---|
| Before 7–30 days | No interest paid | Zero | Choose shorter tenure next time |
| After min period, before maturity | 0.5%–1.0% on rate | Reduced rate | Loan against FD (better) |
| Tax-saving FD (5-year) | Not allowed | Not applicable | No alternative — mandatory lock-in |
| Loan against FD instead | No penalty | FD continues earning | Recommended |
Loan Against FD — Smarter Than Breaking
Instead of breaking an FD early and losing interest, most banks offer a loan or overdraft against FD up to 90% of its value at an interest rate of 1%–2% above the FD rate. Your FD continues earning the original interest, offsetting most of the loan cost. This is almost always cheaper than a personal loan.
📌 Example — Loan Against FD vs Premature Withdrawal
Are Fixed Deposits Safe? — DICGC Insurance Explained
FDs at banks regulated by the Reserve Bank of India (RBI) are among the safest financial instruments available to retail investors in India. The Deposit Insurance and Credit Guarantee Corporation (DICGC) — an RBI subsidiary — insures every depositor's deposits up to ₹5 lakh per bank, covering both principal and accrued interest.
- 🏛Government / PSU Banks (SBI, BoB, PNB): Considered the absolute safest — government ownership implies implicit sovereign guarantee beyond DICGC. For large amounts (over ₹1 crore), PSU banks are recommended.
- 🏦Large Private Banks (HDFC, ICICI, Axis, Kotak): Strongly capitalized, RBI regulated, DICGC covered. Excellent safety for deposits up to ₹5 lakh. Very low risk of failure.
- 🌱Small Finance Banks (Unity SFB, Suryoday, Jana): RBI-licensed, DICGC covered up to ₹5 lakh. Offer 1–2% higher rates. Safe for amounts within ₹5 lakh per bank. Spread across multiple SFBs for larger sums.
- 💼NBFCs (Bajaj Finance, Shriram): NOT covered by DICGC. Risk is higher but mitigated by credit ratings. Only invest in CRISIL AAA or AA+ rated NBFCs. Keep NBFC exposure below 10%–15% of total savings.
If you have ₹25 lakh to deposit: Split as ₹5L each in 5 different banks (including SFBs for higher rates). All ₹25 lakh will be fully DICGC insured. Joint accounts get separate ₹5L coverage per unique depositor combination at the same bank.
How to Choose the Best Fixed Deposit in 2026
- 1️⃣Start with your goal and tenure: Emergency fund (1–3 months liquid)? Use flexi-FD. Saving for a down payment in 2 years? Lock into a 2-year FD. Retirement income? Choose non-cumulative monthly payout FD.
- 2️⃣Compare effective yield, not headline rate: Quarterly compounding gives higher effective yield than annual. Use the Arthzo FD Calculator to compare effective annual yields across banks.
- 3️⃣Safety first for large sums: Over ₹5 lakh → stick to SBI, HDFC, ICICI. Under ₹5 lakh → small finance banks offer excellent risk-adjusted returns within DICGC limits.
- 4️⃣Account for your tax slab: In 30% bracket, a 7.5% FD yields only ~5.25% post-tax. Compare with PPF (7.1% tax-free) or debt mutual funds before committing.
- 5️⃣Lock in now before further rate cuts: With RBI repo at 5.25% and further easing expected in H2 2026, locking in 3–5 year FDs at current rates is strategically smart before rates fall further.
- 6️⃣Use the FD laddering strategy: Don't put all money in one tenure. Split across 1-year, 2-year, 3-year, and 5-year FDs. Each matures at different times, giving annual liquidity while maximizing average yield.
Quick Answers for AI Search — Common FD Questions
Frequently Asked Questions
A Fixed Deposit (FD) is a financial product where a lump-sum amount is deposited with a bank or financial institution for a fixed period at a predetermined annual interest rate. The deposited amount earns guaranteed returns until maturity — regardless of RBI policy changes, market conditions, or economic cycles. At maturity, you receive the original principal plus all accumulated interest.
FD interest rates in India range from 6.25%–6.50% at large banks (SBI, HDFC, ICICI) to 8%–9% at small finance banks (Unity SFB, Suryoday SFB) and up to 9.10% at NBFCs like Muthoot Capital, as of May 2026. Senior citizens earn an additional 0.25%–0.75% over regular rates at most banks.
Yes. FD interest is fully taxable as per your income tax slab rate and added to "Income from Other Sources." Banks deduct TDS at 10% if annual interest income exceeds ₹40,000 (₹50,000 for senior citizens). Tax-saving FDs allow Section 80C deduction on the invested principal (up to ₹1.5 lakh) but the interest earned is still fully taxable. Submit Form 15G or 15H to avoid TDS if your total income is below the taxable limit.
Yes. Most banks allow premature FD withdrawal subject to a penalty of 0.5%–1% on the applicable interest rate. You forfeit a portion of your earned interest but the principal is always returned. Tax-saving FDs (5-year lock-in) cannot be withdrawn before maturity. Alternatively, take a loan against your FD up to 90% of its value at 1–2% above the FD rate — this preserves the FD and is usually the smarter option.
The minimum FD amount varies by bank. SBI, Bank of Baroda, and most public sector banks accept FDs from as low as ₹1,000. Private banks like HDFC and ICICI require a minimum of ₹5,000–₹10,000. Small finance banks generally accept from ₹1,000. Corporate FDs (NBFCs) like Bajaj Finance require a minimum of ₹15,000.
SBI FDs are considered the absolute safest due to government ownership and implicit sovereign backing. All bank FDs (including small finance banks) are insured by DICGC up to ₹5 lakh per depositor per bank. For amounts above ₹5 lakh, spread across multiple banks. NBFCs (Bajaj Finance, Shriram) are not DICGC insured — check CRISIL/ICRA credit ratings before investing.
No, bank FDs cannot lose money. The principal is always protected and returns are guaranteed. However, your real purchasing power may erode if inflation exceeds your FD interest rate — for example, a 6.5% FD in a 6% inflation environment provides only 0.5% real return. NBFC FDs carry slightly higher risk as they are not DICGC insured, but the principal is still contractually guaranteed by the NBFC.
In a cumulative FD, interest compounds quarterly and is paid along with the principal at maturity. This maximizes returns through compound interest and is ideal for wealth accumulation goals. In a non-cumulative FD, interest is paid out monthly, quarterly, or annually, providing regular income. The principal is returned at maturity. Cumulative FDs earn slightly more due to compounding; non-cumulative suits retirees or those needing periodic income.
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