When it comes to savings, each individual has their own preferences. The savings instrument a person chooses may vary depending on the amount one can afford to save, the time horizon, the purpose of saving, and more.
Fixed deposit (FD) accounts have been a popular choice for saving money since it is not dependent on market variations and has a constant interest rate guaranteed at the time of maturity.
|1.85% p.a. – 7% p.a.
|Minimum Deposit Amount
|7 days to 10 years
|Interest Compound Frequency
|Monthly, Quarterly, or Annually
|Partial and Mid-term Withdrawal
|Allowed with Penalty
|Allowed with Penalty
RBI has announced a new rule applicable to unclaimed, matured FD accounts. That is the funds in an unclaimed, matured FD account will attract an interest rate as applicable to the savings account or the contracted rate of the matured FD, whichever is lower.
What is a Fixed Deposit (FD) Account?
Fixed deposit accounts are an investment instrument offered by banks and other financial institutions. Under this account, investors would deposit a lump sum over a period. In return, they would get a fixed rate of interest throughout the investment tenure.
The rate of interest provided on FDs is much higher than that of a regular savings bank account. Once the tenure of the deposit ends, investors can withdraw their investment. On the other hand, they have a choice of reinvesting their money for another term.
All scheduled commercial banks and some NBFCs and HFCs in India offer fixed deposit accounts. If you are to invest in FDs provided by an NBFC or HFC, then check the ratings of the financial institution provided by agencies, such as CRISIL. This is to make sure that your money is safe.
Private sector banks and other financial institutions may offer a slightly higher rate of interest than the public sector banks.
Types of FDs Available
Fixed deposit accounts can be distinguished into several categories based on the benefits offered by the account, the account holder type, and the purpose for which the account is opened. Here, we have listed down some types of FD accounts:
1.Regular FD Account
The regular FD account is for individuals who are aged less than 60 years. The interest rates for such an FD account will be lesser than the one offered for senior citizens. Any Indian resident individual can open this account.
2. FD Account for Senior Citizens
This account is dedicated to senior citizens, i.e. individuals aged above 60 years. Such account holders get a higher interest rate than usual and can access the monthly interest payout option, which can be thought of as a means for the monthly expenses for senior citizens.
3. Corporate FD Account
Corporate firms get a separate set of interest rates and deposit tenures with banks. Firms can deposit the excess funding or profits they have raised in such corporate FD accounts for the time being until they put the cash in use.
4. Tax-Saving FD Account
Many risk-averse individuals utilise the tax-saving FD accounts with a minimum lock-in period of five years to save income tax. Such deposits gain tax deduction under section 80C of the Income Tax Act, 1961.
5. NRO FD Account
Non-Resident Ordinary FD account can be opened by Overseas Citizen of India (OCI), Person of Indian Origin (PIO), and Non-Resident Indian (NRI). Any income earned in INR can be deposited only in NRO FD accounts. This account can be jointly held with an Indian resident as long as this person falls in one of the categories of relatives specified under Section 6 of the Companies Act, 1956.
6. NRE FD Account
A Non-Resident External (NRE) FD account can be opened by two or more NRIs. The account acts as the right way to convert the foreign currency earned outside India into Indian currency denominations. Both the principal and interest from this account are completely repatriable. The interest income from this account is exempted from tax under Section 10(4) of the Income Tax Act.
7. FCNR FD Account
Foreign Currency Non-Repatriable FD account can be opened by NRIs and can deposit money earned overseas in India. The currencies generally accepted are US Dollars, Pounds Sterling, Euro, Japanese Yen, etc. The account allows you to retain your money in the same currency while earning good returns.
8. FD Account With Monthly Payout
This FD scheme pays out the interest accumulated on a monthly basis. That is the interest accrued will not be added back to the principal, and the interest will not be compounded in this case. You can choose to get the interest component sent to your savings account on a monthly basis and utilise the sum for any expenses.
9. FD Account With Maturity Payout
In this case, the interest gets accrued in the FD account over the deposit tenure, gets compounded, and you will receive the principal + interest components upon maturity of the FD account.
Top 15 Banks and Their Interest FD Interest Rates
|For Regular Customers (% p.a.)
|For Senior Citizens (% p.a.)
|3% – 7%
|3.5% – 7.75%
|3% – 7%
|3.5% – 7.75%
|2.8% – 6.2%
|3.3% – 6.7%
|3% – 6.5%
|3.5% – 7%
|3% – 7%
|3.5% – 7.5%
|State Bank of India
|3% – 7.1%
|3.5% – 7.6%
|3% – 7%
|3.5% – 7.75%
|Punjab National Bank
|3.5% – 7.25%
|4.3% – 8.05%
|Bank of Baroda
|3% – 7.05%
|3.5% – 7.55%
|2.8% – 7.25%
|2.8% – 7.75%
|IDFC First Bank
|3.35% – 7%
|4% – 7.5%
|Indian Overseas Bank
|4% – 7.25%
|4.5% – 7.75%
|PNB Housing Finance
|7% – 7.5%
|7.3% – 8%
|4% – 7.25%
|4% – 7.75%
|Post Office FD
|6.9% – 7.5%
|6.9% – 7.5%
*FD interest rates are subject to change.
Top 10 Tax Saving FD Interest Rates
Tax-saving FDs offer a maximum deduction of Rs.1.5 lakh under Section 80C of the Income Tax Act. The lock-in period is 5 years. Senior citizens are offered an additional interest rate. Below are the interest rates of tax-saving FDs offered by different banks.
|Name of the Tax Saving FD
|For General Citizens (p.a.)
|For Senior Citizens (p.a.)
|SBI Bank Tax Saving FD
|IndusInd Bank Tax Saver Scheme
|HDFC Bank Tax Saving FD
|Canara Bank Tax Saving FD
|Axis Bank Tax Saving FD
|Bank of Baroda Tax Saving FD
|IDFC First Bank Tax Saving FD
|Union Bank of India Tax Saving FD
|PNB Tax Saving FD
|IDBI Bank Tax Saving FD
*FD interest rates are subject to change.
Taxation on FD Earnings
You can take advantage of the income tax deduction provision under Section 80C of the Income Tax Act by investing up to Rs.1.5 lakh in a tax-saver fixed deposit account. The scheme ensures returns along with capital protection. However, you must note that the interest income from the account is fully taxable.
The tax liability is totally dependent on your total income for the financial year and the tax slab you fall into. The interest income falls under the head ‘Income from Other Sources’.
In addition, banks deduct tax at source if the interest earned exceeds Rs.40,000 in a financial year across all the accounts held with the bank. A TDS certificate will be issued to confirm the details of the deduction.
Read here to know more about the taxation on FD returns.
Tax Saving Fixed Deposits
As per Income Tax Act, an individual can claim a tax deduction under Section 80C for investments in tax-saving fixed deposits of up to Rs.1.5 lakh. Below are the criteria to be fulfilled to claim this deduction:
- Only individuals and Hindu Undivided Families (HUF) are eligible to invest in tax-saving FD schemes.
- The FD amount can be the minimum amount stipulated by the respective bank.
- The tax-saving FDs have a 5-year lock-in period. Premature withdrawals of the FD are not permitted.
- Individuals can invest in FDs through any public or private bank, except rural and co-operative banks.
- The Post Office Time Deposit of 5 years tenure also qualifies for claiming tax deductions under the Income Tax Act of 1961.
- FDs can be held individually or jointly. In the case of a joint FD, the tax benefit will be given to the first holder.
- Interest earned on the FDs is taxable under the investor’s tax bracket, thus, Tax Deductible at Source (TDS) is applicable.
- Banks offer higher interest rates to senior citizens on FDs. The increased interest rate exists for a tax-saving FD also.
How to Open an FD Account?
Fixed deposit accounts can be opened either online or offline. Here is the general process to follow:
- Log in to the selected bank’s net banking account.
- Search for the ‘Open a Fixed Deposit Account’ option among the available features and click on the option.
- Fill up the online application form with the relevant information.
- Upload the soft copies of all the requested documents.
- Mention a nominee for the maturity amount if applicable.
- Transfer the amount you would like to invest and complete the application.
- Visit the nearest branch of the bank or financial institution.
- Request for the FD application form and duly fill the application form with relevant details.
- Attach the requested documents, such as proof of identity and address, with the application form and submit them at the counter.
- Provide a cheque/cash for the amount that you would like to invest.
- Your application will be processed, and the account will be opened as per the timelines specified by the bank/financial institution.
What Does Lock-in Period Mean for FDs?
In the case of an FD account, the lock-in period is the same as the maturity period or deposit tenure. This simply means that you cannot withdraw the amount deposited within this duration. Even if you do, it comes with a penalty.
When it comes to tax-saver FD schemes, you strictly cannot withdraw the funds within 5 years from the date of account opening. In the case of other FD schemes, premature withdrawal is still allowed with certain penalty terms defined at the time of opening the account. The terms may differ from bank to bank.
It is advised that you oblige to the lock-in period and let the principal accrue interest without disturbing it to gain the maximum benefit.
What Does Loan Against FD Mean?
Consider that you have deposited Rs.1 lakh in a fixed deposit account with Bank B for a tenure of 3 years. Since you have made the deposit for a long period, the bank agrees to offer 6% p.a. and you are happy about it.
However, at the end of the first year, you have come across an emergency situation and need Rs.70,000. If you withdraw the deposit prematurely, you will be penalised and will not receive the expected returns.
In this scenario, the bank will suggest you take a loan on the FD instead of closing the deposit account. That is you can take a loan on the FD amount, utilise the money for the emergency, and pay it back before the account maturity. This allows the FD account to accrue interest as usual and you receive money to address the emergency, both at the same time.
Features and Benefits of FD Accounts
- The investment tenure of FDs ranges from seven days up to ten years, and it varies across banks.
- The return on investment is compounded periodically; it may be monthly, quarterly, or annually.
- Senior citizens are provided with 0.5% higher returns as compared to regular customers.
- Partial and premature withdrawals may be permitted with penalties.
- Taxpayers can invest in tax-saver FD schemes to save taxes under Section 80C of the Income Tax Act, 1961.
- Upon maturity of the FD account, investors can reinvest the sum for another term.
- Loan against FDs is available.
- Investors will accumulate higher returns if they invest for an extended period.
- Returns are assured as they are not tied with the market highs and lows as in the case of mutual funds.
- The investment is safe as banks and other financial institutions are always under the purview of the Reserve Bank of India (RBI).
- Compounded interest makes your investment grow at a much faster rate.
- Premature withdrawals are allowed, so you will always have a corpus to fall back on at times of crisis.
Eligibility Criteria for fixed Deposit Investment
The following eligibility criteria are applicable to open an FD account in India. There may be additional criteria that are bank-specific.
- Individuals who are resident Indians
- Joint account by two or more Individuals
- Senior citizens
- Blind people
- Illiterate people
- Non-Resident Indians (NRIs)
- Sole proprietorship companies
- Societies, trusts, clubs, associations, etc
- Religious and educational institutions
- Partnership firms
- Proof of Identity
- PAN card
- Voter ID
- Driver’s license
- Aadhaar card
- Proof of Address
- Aadhaar card
- Bank statement with a cheque
- Proof of Date of Birth
- Service discharge certificate
- PAN card
- Aadhaar card
- Voter ID
Advantages of FD
- Saving Habit: Opening an FD account teaches you an important financial lesson—saving. Once you get the taste of saving and appreciate the magic of interest in addition to your savings, you will learn to save more and more going forward. This will help reduce the habit of spending on unnecessary things.
- Guaranteed Returns: Many investment instruments give out varied returns based on the market fluctuations; even the payout of capital investment may not be guaranteed. In contrast, the FD account assures to return both principal amount and an interest component at the end of the deposit tenure as promised.
- Flexibility: You can choose a deposit tenure based on your requirement and convenience. You can deposit the money for a duration as short as 7 days or as long as 10 years and let the money acquire some attractive interest on its own.
- No Maintenance: Unlike the case of stocks and mutual funds, you can deposit the money and relax. Active management is not necessary when it comes to an FD account.
- Easy Liquidity: Though there is a lock-in period for the account, you can liquidate the investment whenever you want. The lock-in conditions are not as stringent as any other investment instrument.
- Safety: Consider that the bank with which you have deposited money defaults. Don’t worry! You will be eligible for a maximum compensation of Rs 5 lakh from Deposit Insurance and Credit Guarantee Corporation (DICGC). This is applicable from 4th February 2020. This arrangement makes FDs a safe investment option.
- Tax Benefit: You can get a tax deduction under Section 80C of up to Rs.1.5 lakh when you make an investment on a tax-saver FD scheme with a minimum lock-in period of five years.
Limitations of FD
- Fixed Returns: Though the returns will not go south and a particular return percentage is guaranteed, the concept hinders the possibility of earning higher returns.
- Lock-in Period: FD accounts come with a specific lock-in period that is chosen by the customers themselves. The investment can be liquidated before maturity only at the cost of a penalty on the interest rate promised, which is nothing but a loss.
- Limited tax benefits: Though a 5-year tax-saver FD account is chosen by individuals to save tax in a safer way, the returns from the account are taxable under the Income Tax Act.
Utilise our easy-to-use FD calculator to check the returns you may receive when you invest a certain amount over a deposit tenure.
FD or ELSS – Which is the Best?
Take a look at the table to understand the difference between FD and Equity-Linked Savings Scheme (ELSS):
|Fixed Deposit (FD) Account
|Equity-Linked Savings Scheme (ELSS)
|A lump sum is deposited for a specified period that attracts a fixed interest rate
|A type of mutual fund where a lump sum is invested where the returns are subject to market fluctuations
|Little to no risk
|Low to high risk
|Guaranteed and predictable
|Not guaranteed and unpredictable
|Minimum of 5 years
|Minimum of 3 years
|Taxability on Returns
|Interest income is fully taxable
|Dividend earned is not taxable
|Loan available on the deposit amount
|No loan facility
Who Should Invest in Fixed Deposit?
Fixed deposit accounts are an excellent investment vehicle for those investors who don’t want to bear any risk. If you wish to sustain the money over the years and are not looking for growing wealth or if you are looking for steady returns, you can go for FD accounts.
Many pensioners, who have a lump sum resulting from retirement, invest the money in FD accounts such that the monthly interest payout from the account can be used as spending cash.
You can also set aside a lump sum for the sake of your children or minors so they can utilise the sum at a later date for higher education. You can also use FD accounts if you are planning to build emergency funds.
Frequently Asked Questions
How will I receive the maturity amount of the FD?
The bank will transfer the maturity amount, i.e. the principal amount and the interest amount, to the connected savings account held with the bank. In case you do not have a savings account with the said bank, you can provide instructions to the bank as to how you would like to receive the maturity amount.
How to open an FD account for senior citizens?
If you wish to open an FD account for senior citizens, it is prescribed to provide documents ascertaining the age of the account holder. Based on the age concluded from such a document, the bank will confirm if you would like to get interest rates and other benefits applicable to senior citizens and do the needful.
What should be done if the account holder is not alive by the time of maturity?
It is always advised to set a nominee for your FD account either at the time of opening the account or at any time before maturity. In the case of the sudden demise of the account holder, the nominee can get the maturity amount. If a nominee is not specified, the legal heir of the account holder can submit the necessary documents and gain access to the account.
Should I pay a processing fee to get a loan against FD? How much loan can I get?
Generally, a processing fee will not be charged to get a loan against FD. However, it may vary depending on the bank you approach. You can get a loan of up to 60%-75% of the deposit amount. Note that such loans come with an interest rate slightly higher than the prevailing FD rates.
What is fixed deposit?
A Fixed Deposit (FD) is one of the most common investments, where you put a lump sum of money in your bank account for a fixed time at a fixed rate of interest. At the end of the time period of the FD, you receive the amount you have invested with the compound interest. It is safer than equity investments which help you fulfil your long-term financial objectives, such as buying a house, children’s education or retirement planning.
Which bank is best for fixed deposit?
Every bank offers a different rate of interest depending on the time of the FD. The bank that offers a high rate of interest for the year you want to do an FD, is the best bank for opening an FD. Compare the interest rates of different banks from the link given here and opt for the bank offering the highest interest rate –
What is Utsav fixed deposit scheme?
The SBI introduced a new term deposit scheme in August known as the ‘Utsav Deposit’. This scheme was open for investments from August 15, 2022, till 28 October 2022. Investors could earn an interest rate of 6.1% under this scheme. The Indian Bank also launched a special term deposit plan known as ‘IND Utsav 610’ that was valid for 610 days and ended on 31 October 2022. The interest rate offered under this deposit scheme was 6.10% for the general public, 6.25% for senior citizens, and 6.50% for super senior citizens (80 years and above).
How to calculate fixed deposit interest?
FD interest rate is calculated by multiplying the principal, rate of interest and the time period. The formula for this is ‘principal x rate of interest x time period divided by 100’ or (P x R x T/100). Utilise our easy-to-use FD calculator to check the returns you may receive when you invest a certain amount over a deposit tenure.
Which bank FD has highest interest rate?
Every bank offers a different rate of interest depending on the time of the FD. Click here to compare the interest rates of different banks and get to know the bank offering the highest interest rate
Is 5-year FD tax-free?
Many banks offer a five-year FD scheme meant for tax saving. Such FD schemes are tax-free. You can claim an income tax deduction by investing money in a five-year FD scheme under Section 80C of the Income Tax Act, 1961.
Which FD is eligible for 80C?
You can claim an income tax deduction by investing money in a five-year FD scheme under Section 80C of the Income Tax Act, 1961. A tax-saving fixed deposit (FD) account is a type of fixed deposit account that offers a tax deduction under Section 80C of the Income Tax Act, 1961. Any investor can claim a deduction of a maximum of Rs.1.5 lakh per annum by investing in a tax-saving fixed deposit account.