Fixed Deposit (FD)
Calculate the maturity amount and interest earned on Fixed Deposits.
Summary
The Fixed Deposit (FD) remains the bedrock of Indian savings. In an era of volatile crypto and fluctuating stock markets, the FD offers something priceless: Certainty. When you book an FD, you lock in your interest rate for the entire tenure, insulating your money from future rate cuts or market crashes.
🏦 The Secret of FD Compounding
Most investors assume a 7% FD gives simply 7% return. This is incorrect.
In India, bank FDs typically use Quarterly Compounding. This means your interest earns its own interest four times a year. As a result, the Annualized Yield is always higher than the quoted interest rate.
Example: A 7.0% FD actually yields ~7.19% per annum due to compounding.
Taxation: The "Real" Return of FDs
This is the biggest drawback of Fixed Deposits. The interest you earn is added to your annual income and taxed at your slab rate.
- TDS (Tax Deducted at Source): If your interest income from a single bank exceeds ₹40,000 (₹50,000 for Seniors), the bank deducts 10% TDS automatically.
- Slab Rates: If you are in the 30% tax bracket, a 7% FD effectively gives you only 4.9% post-tax return. This often fails to beat inflation (approx 6%).
- Form 15G/15H: If your total income is below the taxable limit, you must submit these forms to the bank every April to prevent TDS deduction.
Frequently Asked Questions
Is FD safe if the bank fails?
Yes. Under the DICGC Act, deposits up to ₹5 Lakh (Principal + Interest) per bank per person are insured. This makes FDs one of the safest assets.
Can I take a loan against my FD?
Yes, this is a great feature. Most banks offer an overdraft or loan of up to 90% of your FD value at an interest rate just 1-2% higher than your FD rate. This is better than breaking the FD.