A fixed deposit (FD) places a lump sum with a bank or eligible deposit-taking institution for an agreed period. The deposit terms specify the interest rate, payment schedule and maturity date. Predictable interest does not make every FD risk-free: the issuer, insurance cover and withdrawal rules matter.
How an FD works
Choose the amount, tenure and interest-payment option. A cumulative deposit retains interest until maturity; a payout deposit pays interest periodically. Compare the actual maturity amount or payout schedule, not just the advertised annual rate.
Payment methods differ by product. For example, SBI’s term-deposit page describes quarterly interest and a discounted rate for monthly payments. Check the issuer’s terms before assuming that an annual rate divided by twelve equals the monthly payout. Source: SBI fixed deposits.
How to calculate interest
For a simple-interest illustration:
Interest = principal × annual rate × time in years. Use our simple interest calculator to try different amounts, annual rates and periods in years, months or days. This tool calculates simple interest only; it does not model a compounding FD.
For regular compounding without withdrawals:
Maturity amount = P × (1 + r/n)^(n × t)
Here P is the principal, r the annual rate as a decimal, n the number of compounding periods per year, and t the time in years. Interest earned equals maturity amount minus principal.
For example, ₹1,00,000 at an assumed 7% annual rate, compounded quarterly for one year, grows to approximately ₹1,07,185.90. Interest is about ₹7,185.90 before tax. This is a mathematical illustration, not a current bank offer. Actual bank calculations may use different day-count or rounding rules.
Main types of FD
- Cumulative: interest accumulates for payment at maturity.
- Periodic payout: interest is paid during the term.
- Senior-citizen deposit: eligibility and any additional rate depend on the issuer and scheme.
- Tax-saving bank deposit: has specific eligibility and lock-in rules.
- Sweep-linked deposit: linked to an account, with transfer and withdrawal rules set by the bank.
NRE and NRO deposits have separate residency and tax conditions. Do not apply a resident-deposit guide to them without checking the relevant rules.
Can you withdraw early or borrow against an FD?
Check the product before committing money you may need urgently. Premature closure can change the applicable rate and involve a penalty; it is not available for every deposit. Loan or overdraft facilities are also product-specific.
For example, SBI’s tax-saver product has a five-year lock-in, with specified exceptions involving death of the account holder. It should not be described as an ordinary emergency fund that can always be broken for a small charge. Source: SBI tax-saver terms.
If your deposit rolled over at maturity, see our guide to cancelling an automatically renewed FD.
Bank FD insurance and NBFC deposits
DICGC covers eligible bank deposits up to ₹5 lakh per depositor per bank, including principal and interest, held in the same right and capacity. Deposits across branches of the same bank are combined; opening several FDs there does not create separate ₹5 lakh limits.
NBFC deposits are not covered by DICGC. A credit rating is not deposit insurance or a promise that repayment cannot fail. Compare issuer risk as well as the rate. Source: DICGC deposit-insurance guide.
Tax-saving deductions: check your regime and year
An eligible tax-saving bank FD is different from an ordinary FD. Do not assume every deposit creates a deduction or that the deduction makes its interest tax-free.
For periods under the 1961 Act, the relevant savings deduction is Section 80C. Under the 2025 Act, Section 123 and Schedule XV provide the corresponding specified-savings framework, with a ₹1.5 lakh aggregate limit. This is a shared deduction limit, not a fresh allowance for each product. The Department confirms that Section 123 is unavailable under the new concessional regime in Section 202. Check eligibility under the regime and year relevant to your return. Source: Income Tax Department savings-deduction FAQs.
TDS and Form 121
TDS is tax withheld by the payer; it is not automatically your final tax liability. The applicable threshold, rate and PAN requirements depend on the payment, taxpayer and period. Do not apply bank thresholds indiscriminately to every NBFC or non-resident deposit.
For tax years beginning from April 2026, Form 121 replaces Forms 15G/15H under the new framework. It is a declaration for eligible cases where estimated tax liability is nil, not a general way to make FD interest exempt.
For resident individuals below 60 and other eligible resident persons, the official FAQ also requires aggregate specified income to stay within the applicable basic exemption limit. Resident individuals aged 60 or above have the relaxed income condition described in the FAQ, but estimated tax must still be nil. Check the full conditions and submit accurate information to each payer. Source: official Form 121 FAQ.
What to compare before opening a deposit
- Issuer and applicable deposit-insurance cover.
- Rate for your exact amount, tenure and customer category.
- Interest-payment frequency and maturity value.
- Premature-withdrawal restrictions and charges.
- Tax treatment and any deduction eligibility.
- Renewal instructions, nomination and required KYC documents.
Our FD-rate comparison is a starting point. Confirm the latest offer directly with the issuer before placing a deposit; rates and conditions can change.
Editorial update, 23 September 2026: clarified issuer risk, deposit-insurance limits, withdrawal restrictions and tax-regime conditions; added a labelled interest illustration and official sources.
This is general educational information, not a recommendation to choose a particular deposit or issuer.
Last Updated on 1 month ago by Team Paisaseekho
