Question 1

How is FD interest calculated?

Accepted Answer

For simple interest FDs: Maturity = P + (P × R × T)/100. For compound interest FDs: Maturity = P × (1 + R/n)^(n×T), where P = Principal, R = Rate, T = Time in years, n = compounding frequency.

Question 2

Is FD interest taxable?

Accepted Answer

Yes, FD interest is fully taxable as 'Income from Other Sources' at your applicable income tax slab rate. TDS at 10% is deducted if annual interest exceeds ₹40,000 (₹50,000 for senior citizens).

Question 3

Which is better — monthly or cumulative FD?

Accepted Answer

Cumulative FDs compound interest and pay at maturity, giving higher returns. Monthly FDs pay interest regularly, useful for regular income needs. Cumulative FDs are better for wealth creation if you don't need periodic income.

Question 4

What happens if I break my FD early?

Accepted Answer

Premature FD withdrawal typically incurs a penalty of 0.5–1% reduction in interest rate below the contracted rate for the actual holding period. Some banks waive the penalty for specific conditions.

Question 5

What is a tax-saving FD?

Accepted Answer

Tax-saving FDs have a mandatory 5-year lock-in period and qualify for tax deduction up to ₹1.5 lakh under Section 80C. The interest earned is still taxable. These cannot be prematurely withdrawn.

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