Fixed Deposit (FD)
Check maturity amount for bank FDs.
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.
FD Interest Rates 2025: What to Expect
FD rates are linked to the RBI Repo Rate. Currently, we are in a relatively high-interest regime. Here are the typical brackets for 2025:
| Bank Type | General Citizens | Senior Citizens |
|---|---|---|
| PSU Banks (SBI, PNB) | 6.50% - 7.00% | 7.00% - 7.50% |
| Private Giants (HDFC, ICICI) | 7.00% - 7.50% | 7.50% - 8.00% |
| Small Finance Banks | 8.00% - 8.50% | 8.50% - 9.00% |
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.
FD vs Debt Mutual Funds
For investors in higher tax brackets, Debt Funds used to offer indexation benefits. However, post-April 2023, Debt Funds are taxed exactly like FDs. The only remaining advantage of Debt Funds is liquidity (you can withdraw partial amounts without penalty) and deferral of tax (you only pay tax when you withdraw, unlike FDs where you pay tax on accrued interest every year).
Frequently Asked Questions
Is my money safe in an FD?
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.
What is a Tax-Saver FD?
It is a specific type of FD with a mandatory 5-year lock-in. Investments up to ₹1.5 Lakh qualify for tax deduction under Section 80C. However, the interest earned is still taxable.
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.