Fixed Deposits in India: Complete 2026 Guide

What Is a Fixed Deposit?

A Fixed Deposit (FD) is a financial instrument offered by banks and NBFCs where you deposit a lump sum for a fixed tenure at a predetermined interest rate. Unlike a savings account, the rate is locked in when you open the FD — market changes don't affect your return.

FDs are considered one of the safest investments in India because deposits in scheduled commercial banks are insured up to ₹5 lakh per depositor per bank by DICGC (Deposit Insurance and Credit Guarantee Corporation), a subsidiary of the RBI.

Current FD Interest Rates (May 2026)

RBI's repo rate decisions directly influence FD rates. With the repo rate at elevated levels, banks are offering competitive FD rates to attract deposits:

• SBI: 6.5%–7.1% (1–5 years); 7.6% for senior citizens
• HDFC Bank: 7.0%–7.4% (1–5 years); up to 7.9% for senior citizens
• ICICI Bank: 6.9%–7.25% depending on tenure
• Small Finance Banks: 8%–9.5% — higher rates but higher risk

Check the live FD rates comparison on DhanDaily for today's rates across all major banks.

How FD Interest Is Calculated

Most banks compound FD interest quarterly (every 3 months). The formula is:

Example: ₹1 lakh at 7.2% for 3 years = ₹1,23,845 at maturity (₹23,845 interest earned).

Cumulative vs Non-cumulative FD: In a cumulative FD, interest compounds and is paid at maturity. In a non-cumulative FD, interest is paid monthly/quarterly — useful if you need regular income.

Tax on FD Interest

FD interest is fully taxable as "Income from Other Sources" in your ITR. It's added to your total income and taxed at your applicable slab rate. This is the main disadvantage of FDs for taxpayers in the 30% bracket.

TDS on FD interest: Banks deduct TDS (Tax Deducted at Source) at 10% when your annual FD interest from one bank exceeds:

• ₹40,000 for general citizens
• ₹50,000 for senior citizens

Avoiding TDS: If your total income is below the taxable limit, submit Form 15G (or Form 15H for senior citizens) to your bank at the start of each financial year. The bank will not deduct TDS.

Tax-saving FD: 5-year FDs qualify for deduction under Section 80C (up to ₹1.5 lakh). However, the interest earned is still taxable.

Senior Citizen FD Benefits

Banks offer senior citizens (age 60+) an additional 0.25% to 0.75% interest over regular FD rates. This can make a meaningful difference over time. For a 3-year FD of ₹10 lakh at 7.75% vs 7.25%, the additional interest earned is roughly ₹16,000.

Some banks have introduced "Super Senior Citizen" rates for those above 80 years, with an additional 0.25% over regular senior rates.

How to Choose the Right FD

• Compare net-of-tax returns: A 9% rate at a small finance bank in the 30% tax bracket gives only 6.3% post-tax — same as 6.3% from SBI. The safety of SBI wins.
• Match tenure to your goal: Don't lock in a 5-year FD for a goal 2 years away. Premature withdrawal penalties (typically 0.5–1%) erode your returns.
• Spread across banks: Keep no more than ₹5 lakh per bank to maximize DICGC insurance coverage.
• Ladder your FDs: Instead of one ₹5 lakh FD, create four ₹1.25 lakh FDs maturing every 3 months. This provides liquidity without breaking a large FD.
• Consider alternatives: For amounts above ₹10 lakh, debt mutual funds (especially liquid and short-duration funds) can offer better post-tax returns through indexation benefit.

FD vs Other Safe Investments