What Is a Fixed Deposit (FD)?
A Fixed Deposit is a financial instrument where you deposit a lump sum for a fixed period at a predetermined interest rate. It's the safest investment option in India.
How FDs Work
You deposit money with a bank for a fixed tenure (7 days to 10 years). The bank pays a guaranteed interest rate, which is higher than a savings account. At maturity, you get your principal plus accumulated interest. Interest can be paid monthly, quarterly, or at maturity.
FD Interest Rates
Current FD rates range from 6% to 7.5% for general citizens and 6.5% to 8% for senior citizens. Rates vary by bank and tenure. Generally, 1-3 year FDs offer the best rates. Compare rates across banks before investing.
Tax on FD Interest
FD interest is fully taxable at your income tax slab rate. TDS of 10% is deducted if annual interest exceeds ₹40,000 (₹50,000 for seniors). To save tax, consider tax-saving FDs (5-year lock-in) which qualify for Section 80C deduction up to ₹1.5L.
FD vs Other Options
FD vs Savings Account: FD gives 2-3% more interest. FD vs RD: FD gives slightly more (lump sum advantage). FD vs Debt Mutual Funds: Debt funds may be more tax-efficient for high-income earners. FD vs PPF: PPF offers tax-free returns but 15-year lock-in.