What is a Fixed Deposit? Benefits & Interest Rates Explained

Post Office FD Tenure	Interest Rate (% p.a.)
1-Year Deposit	6.90
2-Year Deposit	7.00
3-Year Deposit	7.10
5-Year Deposit	7.50

Investing in Fixed Deposits

Benefits of Fixed Deposits

Eligibility for Investing in Fixed Deposits

Taxability of Fixed Deposits

Managing Fixed Deposits

What is the full form of FD?

Answer: FD stands for “Fixed Deposit.” It is a financial instrument provided by banks and other deposit-taking institutions, where a lump sum is deposited for a predetermined period at a fixed rate of interest. The deposit remains locked until maturity, upon which the principal and accrued interest are returned. Fixed deposits offer capital safety, predictable returns and flexible tenure options.

Why should I start an FD?

Answer: Putting your money into a fixed deposit is a way to ensure that your money grows without the risk of market fluctuations. These products are low risk and flexible, allowing you to choose your term duration and deposit amount. These products earn you better returns than most traditional savings accounts, so you can make the best of your corpus.

How do I choose a fixed deposit?

Answer

Choosing the right FD involves comparing interest rates, tenure options and compounding frequency:

Evaluate current rates for your required lock-in period, balancing higher yields against liquidity needs.
Consider the minimum deposit, premature-withdrawal penalty and loan-against-FD facility.
Assess digital-booking advantages—online rates may be marginally higher. Confirm deposit-insurance coverage limits.
Finally, match tenure to your financial goal, whether short-term expense planning or long-term wealth accumulation.

By weighing these factors, you can select an FD that maximises returns.

What is NRE Fixed Deposit?

Answer: An NRE fixed deposit is a rupee deposit opened by NRIs to park foreign earnings in India. Principal and interest are fully repatriable without restrictions. Interest earned is tax-exempt in India. Funds deposited must originate from an NRE account funded by overseas income. Tenures range from one year to ten years, with standard compounding options. The scheme shields NRIs from currency risk, as both deposit and withdrawal occur in Indian rupees. It suits those seeking secure returns and complete repatriation benefits.

What is the difference between NRE FD and NRO FD?

Answer: NRE FDs are rupee deposits funded with offshore earnings, offering full repatriation of principal and interest. NRO FDs are rupee deposits for domestic income with restricted repatriation and taxable interest. While NRE balances cannot accept income earned in India, NRO accounts consolidate rental, dividend or pension receipts. Tenures and interest-payout options remain similar, but repatriation rules and tax treatment differ.

Can minors open a fixed deposit account?

Answer: Yes, minors can invest in fixed deposits with a parent or guardian as joint account holder. The guardian must complete KYC and sign the deposit form on the minor’s behalf. On reaching 18 years, the minor can convert the FD into a sole account by submitting identity proof and fresh KYC. The deposit enjoys the same interest rates and tenures as regular FDs. A nomination facility is also available to ensure seamless succession.

What is an FD nomination?

Answer: An FD nomination lets you designate beneficiaries to receive deposit proceeds upon your demise. It simplifies succession, avoids complications, and ensures transfer of principal and accumulated interest without probate delays.

How will I receive the FD maturity amount?

Answer: When an FD matures, principal and accumulated interest are disbursed as per your chosen payout mode. Proceeds—comprising the deposited sum and earned interest—are credited directly into your linked savings or current account electronically. Alternatively, you may request a bank cheque or demand draft in your name. For digital FDs, e-payments are instant upon maturity. Some institutions also offer auto-renewal options where principal (and optionally interest) rolls over into a new deposit at prevailing rates unless you instruct otherwise.

What is the FD interest rate for senior citizens?

Answer: Senior citizens receive 0.50% p.a. extra on even the best fixed deposit rates as per regulations. Consequently, if general rates range from 6.50% to 7.75% p.a., senior rates span 7.00% to 8.25% p.a. across tenures. Interest compounds quarterly or monthly, while flexible payout options and enhanced yields provide income boosts for retirees. It is best to check with your financial institution about their FD offerings for senior citizens.

How often will I receive interest?

Answer: Interest payout frequency depends on your selected scheme. Options typically include monthly, quarterly, half-yearly, annual or at maturity. Payout modes vary. Monthly payouts provide regular income, while annual or cumulative options boost compounding. Confirm available frequencies before placing your deposit.

Can depositors get interests on a monthly basis?

Answer: Yes, fixed deposits offer a monthly interest payout option. You can choose to receive interest directly into your linked account each month, preserving the principal and supplying regular cash flow.

Who can invest in an FD scheme in India?

Answer: Resident individuals and nationals, including non-resident Indians, can open FDs. Minors require a guardian as joint holder. HUFs, partnership firms, companies, trusts, societies and sole proprietorships also qualify. All applicants are required to complete KYC and submit requisite documents to start an FD.

What is the minimum deposit amount allowed for opening an FD?

Answer: Most institutions set the minimum deposit for opening a fixed deposit at ₹1,000, making it accessible to small savers and first-time investors. Some digital platforms and promotional schemes may allow even lower thresholds—such as ₹100 or ₹500—to encourage online bookings. Conversely, corporate fixed deposit offerings often require larger sums, sometimes ₹50,000 or more, reflecting their institutional nature. While the minimum is usually nominal, confirm any specific product requirements, as special FDs—like tax-saving or senior-citizen schemes—may mandate higher deposit amounts.

Is it compulsory to submit a PAN to open an FD?

Answer: Yes, submitting a PAN card is mandatory for fixed deposit accounts in India. Institutions require it to comply with tax regulations and enable Tax Deducted at Source (TDS) reporting. If PAN is unavailable, you must provide a Form 60/61 declaration. Failure to submit may result in higher TDS at 20%.

What are the minimum and maximum terms of fixed deposit schemes?

Answer: Fixed deposit tenures usually start at seven days, extending up to ten years. Some institutions offer special short-term tenures as low as one day. Long-term FDs can be extended beyond ten years under select investment plans. Always verify tenure limits and associated rates before booking to align with your financial objectives.

Is FD tax-free?

Answer: Fixed deposits are not tax-free. Interest earned is taxable per income tax slab. However, interest up to ₹50,000 p.a. for senior citizens qualifies under Section 80TTB, and tax-saving FDs offer principal deduction under Section 80C with a five-year lock-in.

Is the interest earned on a fixed deposit taxable?

Answer: Yes, interest earned on fixed deposits is taxable per income tax slab. Institutions deduct tax at source if interest exceeds the annual threshold, subject to PAN and Form 15G/15H filings.

How much tax is deducted on FD interest income?

Answer: Tax Deducted at Source (TDS) on fixed deposit interest applies when total interest in a financial year exceeds ₹40,000 for general and ₹50,000 for senior citizens. Institutions deduct TDS at 10% provided PAN is submitted; otherwise, at 20%. If your actual tax liability is lower, you can claim refunds by filing returns or submitting Form 15G/15H. Rates and limits follow current regulations.

What is the minimum lock-in period for a Tax-Saving FD?

Answer: Tax-saving FDs carry a mandatory five-year lock-in period during which premature withdrawal is not permitted under prevailing regulations, no exceptions.

Does premature withdrawal negatively affect fixed deposit earnings?

Answer: Yes, premature withdrawal of an FD typically incurs a financial penalty—often a reduction of 0.50%–1.00% on the interest rate. This lowers the effective yield and significantly reduces your overall earnings.

What happens if I want to liquidate my FD before maturity?

Answer: Liquidating an FD before maturity triggers a penalty—a reduced interest rate, typically 0.50%–1.00% lower than the booked rate. Your final payout will reflect this adjusted rate for the holding period.

Fixed Deposit: What Is It? What Are Its Types? What Are Its Rates?

What is a Fixed Deposit?

How Does an FD Work?

Fixed Deposit Interest Rates

Post Office FD Interest Rates

Senior Citizens Fixed Deposit Rates

Types of Fixed Deposit

Standard Fixed Deposit

Tax-saving FD

Floating Rate Fixed Deposit

Flexi FD

Senior Citizen Fixed Deposit

Cumulative FD

Non-cumulative FD

Callable FD

Non-callable FD

Corporate Fixed Deposit

Types of FD for Non-Resident Indians (NRIs)

Non-Resident External(NRE) Deposit

NRO (Non-Resident Ordinary) Deposit

FCNR (Foreign Currency Non-Resident) Deposit

RFC (Resident Foreign Currency) Deposit

Benefits of Fixed Deposit

Capital Protection

Predictable Returns

Flexible Tenures

Varied Payout Options

Low Minimum Investment

Loan Facility Against FD

Automatic Renewal

Deposit Insurance Coverage

Features of Fixed Deposit

Low Deposit Amount

Fixed Tenure

Fixed Interest Rates

Premature Withdrawal

Loan Against FD

Interest Payout Options

Non-callable FD

Corporate Fixed Deposit

Who Should Invest in an FD?

New Investors

Retirement Planning

Conservative Investors

Short-term Goals

Emergency Funds

Eligibility Criteria for Fixed Deposit

Documents Required to Open Fixed Deposits

How to Open an FD?

How to Choose the Right Fixed Deposit?

Why Invest in Fixed Deposits?

Guaranteed Returns

Capital Protection

Tax Deduction Under Section 80C

Loan Against Fixed Deposit

Credit Card Against Fixed Deposit

Ideal for All Types of Investors

Who Qualifies for a Fixed Deposit Account in India?

Indian Nationals

NRIs

Minors

Elderly People

Companies

Clubs and Societies

Single-Person Business

Investors (Alone or in Groups)

Company Partnerships

Frequently Asked Questions

Investing in Fixed Deposits

Benefits of Fixed Deposits

Eligibility for Investing in Fixed Deposits

Taxability of Fixed Deposits

Managing Fixed Deposits

What is the full form of FD?

Why should I start an FD?

How do I choose a fixed deposit?

What is NRE Fixed Deposit?

What is the difference between NRE FD and NRO FD?

Can minors open a fixed deposit account?

What is an FD nomination?