A fixed deposit, or FD, is a bank deposit locked in for a fixed term at a fixed interest rate. As of 2026, large banks pay around 6.25% on a one-year deposit, with an extra 0.5% for senior citizens. Deposits of up to Rs 5 lakh per bank are insured by DICGC. Interest is taxed at the depositor's slab rate, and the bank deducts TDS once interest crosses Rs 50,000 a year.
A fixed deposit is money placed with a bank for a set period, from seven days to ten years, at an interest rate agreed on the day the deposit is made. The rate does not change during the term, whatever happens to market rates. At maturity the bank returns the principal with interest. It is the most widely held investment in India, and for most households it is the benchmark every other investment is measured against.
How the interest works
Banks quote FD rates as an annual figure, but interest is usually compounded every quarter. A deposit of Rs 5 lakh at 6.25% for one year earns about Rs 31,990, a little more than the Rs 31,250 that simple interest would give. The depositor can take the interest out monthly or quarterly, or let it build up and collect everything at maturity. Cumulative deposits earn more because the interest itself earns interest.
What FDs pay in 2026
FD rates follow the RBI's repo rate with a lag. The RBI cut the repo rate in steps through 2025 to 5.25%, and banks followed. As of early 2026, SBI pays 6.25% on deposits of one to two years and HDFC Bank pays 6.25% on one year to fifteen months. Both add 0.50% for senior citizens. Small finance banks pay more, often 7% to 8%, because they need deposits more badly. What happens to deposit rates when the RBI moves is explained in what happens to FD rates after a rate cut.
Safety
Deposits are insured by the Deposit Insurance and Credit Guarantee Corporation, an RBI subsidiary, up to Rs 5 lakh per depositor per bank, covering principal and interest together. Money above that limit depends on the bank staying solvent, which is why large depositors spread their money across banks. The cover is the same for a public sector bank, a private bank and a small finance bank, which is what makes the higher small finance bank rates workable for amounts under Rs 5 lakh.
Tax on FD interest
FD interest is added to income and taxed at the slab rate. Banks deduct TDS at 10% once the interest paid to a depositor crosses Rs 50,000 in a financial year, or Rs 1 lakh for senior citizens, limits that took effect from April 2025. Depositors with income below the taxable limit can submit Form 15G or 15H to stop the deduction. The one tax break is the five-year tax-saver FD, which qualifies for the Rs 1.5 lakh deduction under Section 80C in the old regime but cannot be broken early. The RBI's own rules on deposits, including premature withdrawal, are covered in RBI FD rules revised.
Breaking an FD early
Most banks allow premature withdrawal, but charge a penalty of 0.5% to 1% on the applicable rate, and pay interest for the period actually held at the rate for that period, not the rate originally booked. A better option for a short-term need is a loan against the FD, which most banks give at 1% to 2% above the deposit rate while the deposit keeps earning.
FDs against equity
An FD gives a known return with almost no risk to the principal. Equity gives an unknown return with real risk. Over long periods equity has paid several percentage points a year more than deposits, but in any single year it can lose a third of its value, as the Nifty 50 did in early 2020. The sensible use of an FD is for money with a deadline: an emergency fund, a house deposit due next year, a parent's medical reserve. Money that can stay invested for a decade is usually better off in equity.
For a trader, the FD rate is also a useful yardstick. It is the risk-free return any trade has to beat after costs and tax. And in a bear market, a parked FD is the cash reserve that allows buying when prices are low.
FAQs
Can an FD lose money?
Not in nominal terms, as long as the bank survives, and the DICGC cover protects up to Rs 5 lakh if it does not. It can lose value to inflation if the rate is below the inflation rate after tax.
What is the minimum FD amount?
Most banks start at Rs 1,000 to Rs 5,000. There is no upper limit, though rates for deposits above Rs 2 or 3 crore are quoted separately.
Is FD interest paid monthly?
It can be. Non-cumulative FDs pay out monthly, quarterly or annually. The monthly option pays a slightly lower rate because the bank is paying earlier.
Are company FDs the same as bank FDs?
No. Company deposits are unsecured loans to the company, carry no DICGC cover, and pay more because the risk is higher.