Fixed Deposits

A fixed deposit (FD) is a loan you make to a bank or company for an agreed period. The interest rate is fixed on the day you book, and stays the same until maturity whatever happens to rates afterwards. That predictability is the product: you know the maturity amount on day one, provided the issuer pays.

A higher rate on a company deposit is payment for taking more risk. If the company runs into trouble, repayment can be delayed or reduced, and there is no deposit insurance to fall back on. Read the credit rating, and spread money across issuers.

Tenures range from a few days to several years. Match the maturity to when you need the money — the goal decides the tenure, not the highest rate on the card. Longer tenures lock in today's rate, which helps if rates fall and hurts if they rise. An FD ladder — several deposits maturing at intervals — balances the two and gives you regular access.

• Cumulative: interest is added to the principal and compounds, usually quarterly at banks, and the whole amount is paid at maturity.
• Non-cumulative: interest is paid out monthly, quarterly, half-yearly or yearly. Useful for regular income; nothing compounds unless you reinvest the payouts.

Payout frequency changes the effective return slightly — monthly payouts usually carry a marginally lower rate than quarterly, to reflect earlier payment. The FD Calculator shows maturity value, interest and payout timeline for any compounding and payout combination.

Most bank FDs can be broken early. The bank typically pays the rate that applied for the period the money actually stayed, minus a penalty. Tax-saver FDs cannot be withdrawn before their five-year lock-in. Rules for company deposits are usually stricter, and early withdrawals in the first few months may earn little or no interest. Check the terms before booking, not when you need the money.

Many banks and companies offer a higher rate to senior citizens, and sometimes a further premium to those above a higher age. The size of the premium varies by issuer and tenure, and some offers are time-limited.

• Auto-renewal — decide whether the deposit should renew at maturity, and for what tenure. A renewal happens at the rate prevailing on the renewal date, not the original rate.
• Nomination — add a nominee so the deposit can be paid out smoothly if something happens to you.
• Loan against FD — many banks lend against a deposit, which can be cheaper than breaking it.

The headline rate is before tax and inflation. Interest is taxed at your slab rate every year, and inflation erodes what the maturity amount can buy.

For illustration, assume a 7% FD for someone in the 30% tax slab. The post-tax return is about 4.9% before cess. If inflation runs at 5%, the real return is roughly zero. These numbers are hypothetical; use the Inflation Calculator with your own.

CompoundX does not take deposits. We help you understand the options, run the numbers and compare structures. If you'd like to explore deposits further, a CompoundX expert will walk you through issuer types, tenures and payout options; any deposit you choose is placed with the issuer, which remains responsible for repaying it.

In a cumulative FD you still owe tax each year on interest you haven't received — plan the cash for it.

Before booking, check three things in the deposit terms:

1. Is early withdrawal allowed? Tax-saver FDs and some special deposits do not allow it.
2. What rate applies if you break it? Usually the rate for the period actually held, less a penalty.
3. Is there a minimum period? Company deposits often restrict withdrawals in the first few months.

A loan or overdraft against the FD is sometimes cheaper than breaking it — compare the two.

• Interest is income. It is added to your total income and taxed at your slab rate, in the year it accrues.
• TDS. Banks and other payers deduct tax at source once interest paid to you in a financial year crosses a threshold, which is higher for senior citizens. TDS is an advance payment, not the final tax — you still report the interest in your return.
• Self-declaration. If your total income is below the taxable limit, you can submit a declaration so TDS is not deducted. From tax year 2026–27 this is Form 121 under the Income-tax Rules, 2026, which replaced Forms 15G and 15H.
• Tax-saver FDs. Five-year bank deposits that qualify for a deduction under the old tax regime, within the overall limit for such investments.

Tax rules change and depend on your circumstances. This is general education, not tax advice — check the latest provisions or speak to a tax professional.

Deposit insurance in India is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI.

• It covers deposits at insured banks — commercial, small finance, regional rural and cooperative banks.
• Cover is up to ₹5 lakh per depositor per bank, combining principal and interest across all your deposits held in the same capacity and right at that bank.
• The limit applies separately at each bank.
• Company and NBFC deposits are not covered.

Note: The government has said an increase in the cover limit is under consideration. Check the current limit on the DICGC website before relying on it.

Senior-citizen rates are a commercial choice by each issuer, not a regulatory entitlement. The additional rate, the age at which it applies and the tenures it covers vary. Some issuers add a further premium for depositors above a higher age. Compare the full rate and terms, not just the premium, and remember that a higher rate on an uninsured company deposit still carries company risk.

Instead of one large deposit, split the money across several maturities — for example, one-, two-, three-, four- and five-year deposits. As each matures, you either use the money or reinvest it at the long end.

A ladder gives you access to part of the money every year, averages out the rates you lock in, and keeps each deposit smaller — useful for staying within the deposit-insurance limit at each bank. Model each rung in the FD Calculator.