Question 1

What is a Fixed Deposit (FD)?

Accepted Answer

A Fixed Deposit is a savings instrument offered by banks and NBFCs where you deposit a lump sum amount for a fixed period at a predetermined interest rate. FDs are one of the safest investment options in India, with DICGC insurance covering deposits up to Rs 5 lakh per bank per depositor.

Question 2

How is FD interest calculated?

Accepted Answer

FD interest is calculated using the compound interest formula: A = P(1 + r/n)^(nt), where P is the principal, r is the annual rate, n is the compounding frequency, and t is the tenure in years. Most banks compound interest quarterly, which gives slightly higher returns than annual compounding.

Question 3

What is the difference between cumulative and non-cumulative FD?

Accepted Answer

In a cumulative FD, the interest is reinvested and compounded, so you receive the full maturity amount at the end. In a non-cumulative FD, interest is paid out periodically (monthly, quarterly, or yearly), giving you regular income but lower overall returns since you miss out on compounding.

Question 4

Is FD interest taxable?

Accepted Answer

Yes, FD interest is fully taxable as per your income tax slab. Banks deduct TDS at 10% if your annual FD interest exceeds Rs 40,000 (Rs 50,000 for senior citizens). You can save tax on FD by investing in a 5-year tax-saving FD, which qualifies for deduction under Section 80C up to Rs 1.5 lakh.

Question 5

What are current FD interest rates in India?

Accepted Answer

FD interest rates vary by bank and tenure. As of 2025, major banks offer 6.5-7.5% for general citizens and 7-8% for senior citizens on popular tenures. Small finance banks may offer higher rates of 8-9%. Rates change based on RBI policy and the bank's liquidity needs.

Question 6

Can I break an FD before maturity?

Accepted Answer

Yes, most banks allow premature withdrawal of FDs, but they typically charge a penalty of 0.5-1% on the applicable interest rate. Some banks offer a sweep-in FD facility where the FD is linked to your savings account and only the required portion is broken, minimising penalty.

FD Calculator

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FD Calculator

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