Is FD interest taxable?

Yes, FD interest is fully taxable as per your income tax slab. Banks deduct TDS at 10% if your annual interest exceeds Rs. 40,000 (Rs. 50,000 for senior citizens). You can submit Form 15G/15H to avoid TDS if your total income is below taxable limits.

Which is better: cumulative or non-cumulative FD?

Cumulative FD reinvests interest and pays everything at maturity, giving higher returns due to compounding. Non-cumulative FD pays interest periodically (monthly/quarterly), suitable for those needing regular income.

What is a Tax-Saving FD?

A Tax-Saving FD has a 5-year lock-in period and qualifies for deduction up to Rs. 1.5 lakh under Section 80C. However, the interest earned is still taxable.

FD Calculator: Fixed Deposit Interest Calculator

Q: How is FD interest calculated?

FD interest is calculated using the compound interest formula: A = P(1 + r/n)^(nt), where P is the principal, r is the annual interest rate, n is the compounding frequency (usually quarterly = 4), and t is the tenure in years.

Q: What is the penalty for breaking FD before maturity?

Premature withdrawal typically incurs a penalty of 0.5% to 1% reduction from the applicable interest rate. The exact penalty varies by bank and the tenure completed.

What is Fixed Deposit (FD)?

A Fixed Deposit (FD) is a secure savings instrument offered by banks and NBFCs where you deposit a lump sum for a fixed tenure at a predetermined interest rate. Unlike savings accounts, FD rates are locked in at the time of booking, providing guaranteed returns regardless of market fluctuations.

FDs are ideal for risk-averse investors seeking stable, predictable returns. They offer higher interest rates than savings accounts and are covered under DICGC insurance up to ₹5 lakh per depositor per bank.

How is FD Interest Calculated?

Most Indian banks compound FD interest quarterly. The compound interest formula used is:

                        A = P × (1 + r/n)^(n×t)
                    

Where:

A = Maturity Amount
P = Principal (Initial Deposit)
r = Annual Interest Rate (as decimal)
n = Compounding Frequency (4 for quarterly)
t = Tenure in Years

Example: ₹1,00,000 deposited at 7% for 5 years with quarterly compounding:

A = 1,00,000 × (1 + 0.07/4)^(4×5) = ₹1,41,478

Types of Fixed Deposits

Regular FD: Standard FD with flexible tenure from 7 days to 10 years.
Tax-Saving FD: 5-year lock-in with Section 80C benefit up to ₹1.5 lakh.
Senior Citizen FD: Higher interest rates (0.25-0.50% extra) for those above 60.
Cumulative FD: Interest compounded and paid at maturity.
Non-Cumulative FD: Interest paid monthly/quarterly for regular income.
Flexi FD: Linked to savings account, excess funds auto-swept to FD.

FD Interest Rates in January 2026

FD rates vary by bank and tenure. Here are typical rates for major banks:

1-2 Years: 6.50% - 7.25%
2-3 Years: 7.00% - 7.50%
3-5 Years: 6.75% - 7.25%
5+ Years: 6.50% - 7.00%

Note: Senior citizens typically get 0.25-0.50% additional interest.

Tax on Fixed Deposit Interest

FD interest is fully taxable as per your income tax slab:

TDS: Banks deduct 10% TDS if annual interest exceeds ₹40,000 (₹50,000 for senior citizens).
Form 15G/15H: Submit to avoid TDS if your total income is below taxable limits.
Tax-Saving FD: Principal qualifies for 80C deduction, but interest is still taxable.

Frequently Asked Questions (FAQs)

Can I break my FD before maturity?

Yes, premature withdrawal is allowed in most FDs. Banks typically charge a penalty of 0.5% to 1% reduction from the applicable interest rate. Some banks offer penalty-free FDs at slightly lower rates.

Is FD safer than mutual funds?

Yes, FDs are significantly safer. Your principal is guaranteed and returns are fixed. FDs are also insured up to ₹5 lakh under DICGC. Mutual funds have market risk and returns are not guaranteed.

Which is better: Monthly interest or cumulative FD?

Cumulative FD gives higher total returns due to compounding. Choose monthly payout only if you need regular income. For wealth building, cumulative FD is always better.

Can I take a loan against FD?

Yes, most banks offer loans up to 90-95% of FD value at interest rates 1-2% above the FD rate. This is useful for emergencies without breaking the FD.

What happens to FD if the bank fails?

DICGC (Deposit Insurance) covers up to ₹5 lakh per depositor per bank. This includes principal and interest. For amounts above ₹5 lakh, consider spreading across multiple banks.