When it comes to savings, each individual has their own preferences. The savings instrument a person chooses may vary depending on the amount one can afford to save, the time horizon, the purpose of saving, and more.
Fixed deposit (FD) accounts have been a popular choice for saving money because they are not dependent on market variations and have a constant interest rate guaranteed at the time of maturity.
| Interest Rate | 2.10% p.a. – 7.75% p.a. |
| Minimum Deposit Amount | Rs.1,000 |
| Investment Tenure | 7 days to 10 years |
| Interest Compound Frequency | Monthly, Quarterly, or Annually |
| Partial and Mid-term Withdrawal | Allowed with Penalty |
| Premature Closure | Allowed with Penalty |
Latest Update
RBI has announced a new rule applicable to unclaimed, matured FD accounts. The funds in an unclaimed, matured FD account will attract an interest rate as applicable to the savings account or the contracted rate of the matured FD, whichever is lower.
What is a Fixed Deposit (FD) Account?
Fixed deposit accounts are investment instruments offered by banks and other financial institutions. Under this account, investors deposit a lump sum over a period. In return, they receive a fixed rate of interest throughout the investment tenure.
The rate of interest provided on FDs is much higher than that of a regular savings bank account. Once the deposit tenure ends, investors can withdraw their investment. On the other hand, they have a choice of reinvesting their money for another term.
All scheduled commercial banks, some Non-Banking Financial Companies (NBFCs), and Housing Finance Companies (HFCs) in India offer fixed deposit accounts. If you are investing in FDs provided by an NBFC or HFC, it is recommended to check the ratings of the financial institution provided by agencies such as CRISIL for ensuring the safety of your money.
Private-sector banks and other financial institutions may offer a slightly higher rate of interest than public-sector banks.
Types of FDs Available
Fixed deposit accounts can be distinguished into several categories based on the benefits offered by the account, the account holder type, and the purpose for which the account is opened. Here, we have listed down some types of FD accounts:
1. Regular FD Account
The regular FD account is for individuals who are aged less than 60 years. The interest rates for such an FD account will be lesser than the one offered for senior citizens. Any Indian resident individual can open this account.
2. FD Account for Senior Citizens
This account is dedicated to senior citizens, i.e., individuals aged above 60. Such account holders get a higher interest rate than usual and can access the monthly interest payout option, which can be thought of as a means of covering the monthly expenses of senior citizens.
3. Corporate FD Account
Corporate firms get a separate set of interest rates and deposit tenures with banks. Firms can deposit the excess funding or profits they have raised in such corporate FD accounts for the time being until they put the cash to use.
4. Tax-Saving FD Account
Many risk-averse individuals utilise tax-saving FD accounts with a minimum lock-in period of five years to save income tax. Such deposits gain tax deduction under section 80C of the Income Tax Act, 1961.
5. NRO FD Account
A Non-Resident Ordinary (NRO) FD account can be opened by an Overseas Citizen of India (OCI), a Person of Indian Origin (PIO), and a Non-Resident Indian (NRI). Any income earned in INR can be deposited only in NRO FD accounts. This account can be jointly held with an Indian resident as long as this person falls in one of the categories of relatives specified under Section 6 of the Companies Act, 1956.
6. NRE FD Account
A Non-Resident External (NRE) FD account can be opened by two or more NRIs. The account acts as the right way to convert the foreign currency earned outside India into Indian currency denominations. Both the principal and interest from this account are completely repatriable. The interest income from this account is exempted from tax under Section 10(4) of the Income Tax Act.
7. FCNR FD Account
Foreign Currency Non-Repatriable (FCNR) FD accounts can be opened by NRIs and can deposit money earned overseas in India. The currencies generally accepted are US Dollars, Pounds Sterling, Euro, Japanese Yen, etc. The account allows you to retain your money in the same currency while earning good returns.
8. FD Account With Monthly Payout
This FD scheme pays out the interest accumulated on a monthly basis. The interest accrued will not be added back to the principal, and the interest will not be compounded in this case. You can choose to get the interest component sent to your savings account on a monthly basis and utilise the sum for any expenses.
9. FD Account With Maturity Payout
In this case, the interest gets accrued in the FD account over the deposit tenure, gets compounded, and you will receive the principal plus interest components upon maturity of the FD account.
Top 10 Banks With Highest FD Interest Rates
| Bank Name | Tenure | Highest Interest Rate (% p.a.) |
| Bank of Baroda | 399 days | 7.25% |
| Bank of India | 666 days | 7.30% |
| Bank of Maharashtra | 777 days | 7.25% |
| Canara Bank | 444 days | 7.25% |
| Central Bank of India | 444 days | 7.45% |
| Indian Bank | 400 days | 7.25% |
| Indian Overseas Bank | 444 days | 7.30% |
| Punjab National Bank | 400 days | 7.30% |
| State Bank of India | 400 days | 7.10% |
| Union Bank of India | 333 days | 7.40% |
*FD interest rates are subject to change.
Top 15 Banks FD Interest Rates
| Bank List | For Regular Customers (% p.a.) | For Senior Citizens (% p.a.) |
| Citibank | 2.10% – 7.77% | 2.60% – 8.27% |
| HDFC Bank | 3.00% – 7.35% | 3.50% – 7.85% |
| Kotak Bank | 2.75% – 7.40% | 3.25% – 7.90% |
| IDBI Bank | 3.00% – 7.00% | 3.50% – 7.50% |
| ICICI Bank | 3.00% – 7.25% | 3.50% – 7.80% |
| State Bank of India | 3.50% – 7.10% | 4.00% – 7.60% |
| Axis Bank | 3.00% – 7.20% | 3.50% – 7.70% |
| Punjab National Bank | 4.55% – 7.30% | 5.05% – 7.80% |
| Bank of Baroda | 4.25% – 7.25% | 4.75% – 7.75% |
| Indian Bank | 2.80% – 7.25% | 3.30% – 7.75% |
| IDFC First Bank | 3.00% – 7.75% | 3.50% – 8.25% |
| Indian Overseas Bank | 4.00% – 7.30% | 4.50% – 7.80% |
| Canara Bank | 4.00% – 7.25% | 4.00% – 7.75% |
| Post Office FD | 6.90% – 7.50% | 6.90% – 7.50% |
*FD interest rates are subject to change.
Top 10 Tax Saving FD Interest Rates
Tax-saving FDs offer a maximum deduction of Rs.1.5 lakh under Section 80C of the Income Tax Act. The lock-in period is 5 years. Senior citizens are offered an additional interest rate. Below are the interest rates of tax-saving FDs offered by different banks:
| Name of the Tax Saving FD | For General Citizens (p.a.) | For Senior Citizens (p.a.) |
| SBI Bank Tax Saving FD | 6.50% | 7.50% |
| IndusInd Bank Tax Saver Scheme | 7.25% | 7.75% |
| HDFC Bank Tax Saving FD | 7.00% | 7.50% |
| Canara Bank Tax Saving FD | 6.70% | 7.20% |
| Axis Bank Tax Saving FD | 7.00% | 7.75% |
| Bank of Baroda Tax Saving FD | 6.50% | 7.50% |
| IDFC First Bank Tax Saving FD | 7.00% | 7.50% |
| Union Bank of India Tax Saving FD | 6.50% | 7.00% |
| PNB Tax Saving FD | 6.50% | 7.00% |
| IDBI Bank Tax Saving FD | 6.50% | 7.00% |
*FD interest rates are subject to change.
Taxation on FD Earnings
You can take advantage of the income tax deduction provided under Section 80C of the Income Tax Act by investing up to Rs.1.5 lakh in a tax-saver fixed deposit account. The scheme ensures returns along with capital protection. However, you must note that the interest income from the FD account is fully taxable.
The tax liability is totally dependent on your total income for the financial year and the tax slab you fall into. The interest income falls under the head ‘Income from Other Sources’.
In addition, banks deduct tax at source if the interest earned exceeds Rs.40,000 in a financial year across all the accounts held with the bank. A TDS certificate will be issued to confirm the details of the deduction.
Read here to know more about the taxation on FD returns.
Tax Saving Fixed Deposits
As per Income Tax Act, an individual can claim a tax deduction under Section 80C for investments in tax-saving fixed deposits of up to Rs.1.5 lakh. Below are the criteria to be fulfilled to claim this deduction:
- Only individuals and Hindu Undivided Families (HUF) are eligible to invest in tax-saving FD schemes.
- The FD amount can be the minimum amount stipulated by the respective bank.
- The tax-saving FDs have a 5-year lock-in period. Premature withdrawals of the FD are not permitted.
- Individuals can invest in FDs through any public or private bank, except rural and co-operative banks.
- The Post Office Time Deposit of 5 years tenure also qualifies for claiming tax deductions under the Income Tax Act of 1961.
- FDs can be held individually or jointly. In the case of a joint FD, the tax benefit will be given to the first holder.
- Interest earned on the FDs is taxable under the investor’s tax bracket, thus, Tax Deductible at Source (TDS) is applicable.
- Banks offer higher interest rates to senior citizens on FDs. The increased interest rate exists for a tax-saving FD also.
How to Open an FD Account?
Fixed deposit accounts can be opened either online or offline. Here is the general process to follow:
Online:
- Log in to the selected bank’s net banking account.
- Search for the ‘Open a Fixed Deposit Account’ option among the available features and click on the option.
- Fill up the online application form with the relevant information.
- Upload the soft copies of all the requested documents.
- Mention a nominee for the maturity amount if applicable.
- Transfer the amount you would like to invest and complete the application.
Offline:
- Visit the nearest branch of the bank or financial institution.
- Request for the FD application form and duly fill the application form with relevant details.
- Attach the requested documents, such as proof of identity and address, with the application form and submit them at the counter.
- Provide a cheque/cash for the amount that you would like to invest.
- Your application will be processed, and the account will be opened as per the timelines specified by the bank/financial institution.
What Does Lock-in Period Mean for FDs?
In the case of an FD account, the lock-in period is the same as the maturity period or deposit tenure. This simply means that you cannot withdraw the amount deposited within this duration. Even if you do, it comes with a penalty.
When it comes to tax-saver FD schemes, you strictly cannot withdraw the funds within 5 years from the date of account opening. In the case of other FD schemes, premature withdrawal is still allowed with certain penalty terms defined at the time of opening the account. The terms may differ from bank to bank.
It is advised that you oblige to the lock-in period and let the principal accrue interest without disturbing it to gain the maximum benefit.
What Does Loan Against FD Mean?
Consider that you have deposited Rs.1 lakh in a fixed deposit account with Bank B for a tenure of 3 years. Since you have made the deposit for a long period, the bank agrees to offer 6% p.a. and you are happy about it.
However, at the end of the first year, you have come across an emergency situation and need Rs.70,000. If you withdraw the deposit prematurely, you will be penalised and will not receive the expected returns.
In this scenario, the bank will suggest you take a loan on the FD instead of closing the deposit account. You can take a loan on the FD amount, utilise the money for the emergency, and pay it back before the account maturity. This allows the FD account to accrue interest as usual, and you also receive money to address the emergency at the same time.
Features and Benefits of FD Accounts
- The investment tenure of FDs ranges from seven days up to ten years, and it varies across banks.
- The return on investment is compounded periodically; it may be monthly, quarterly, or annually.
- Senior citizens are provided with 0.50% higher returns as compared to regular customers.
- Partial and premature withdrawals may be permitted with penalties.
- Taxpayers can invest in tax-saver FD schemes to save taxes under Section 80C of the Income Tax Act, 1961.
- Upon maturity of the FD account, investors can reinvest the sum for another term.
- Loan against FDs is available.
- Investors will accumulate higher returns if they invest for an extended period.
- Returns are assured as they are not tied with the market highs and lows as in the case of mutual funds.
- The investment is safe as banks and other financial institutions are always under the purview of the Reserve Bank of India (RBI).
- Compounded interest makes your investment grow at a much faster rate.
- Premature withdrawals are allowed, so you will always have a corpus to fall back on at times of crisis.
Eligibility Criteria for fixed Deposit Investment
The following eligibility criteria are applicable to open an FD account in India. There may be additional criteria that are bank-specific.
- Individuals who are resident Indians
- Joint account by two or more Individuals
- Senior citizens
- Minors
- Blind people
- Illiterate people
- Non-Resident Indians (NRIs)
- Sole proprietorship companies
- Societies, trusts, clubs, associations, etc
- Religious and educational institutions
- Companies
- Partnership firms
Documents Required
- Proof of Identity
- Passport
- PAN card
- Voter ID
- Driver’s license
- Aadhaar card
- Proof of Address
- Passport
- Aadhaar card
- Bank statement
- Proof of Date of Birth
- Birth Certificate
- Service discharge certificate
- PAN card
- Aadhaar card
- Voter ID
Advantages of FD
- Saving Habit:Opening an FD account teaches you an important financial lesson—saving. Once you get the taste of saving and appreciate the magic of interest in addition to your savings, you will learn to save more and more going forward. This will help reduce the habit of spending on unnecessary things.
- Guaranteed Returns:Many investment instruments give out varied returns based on the market fluctuations; even the payout of capital investment may not be guaranteed. In contrast, the FD account assures to return both principal amount and an interest component at the end of the deposit tenure as promised.
- Flexibility:You can choose a deposit tenure based on your requirement and convenience. You can deposit the money for a duration as short as 7 days or as long as 10 years and let the money acquire some attractive interest on its own.
- No Maintenance:Unlike the case of stocks and mutual funds, you can deposit the money and relax. Active management is not necessary when it comes to an FD account.
- Easy Liquidity:Though there is a lock-in period for the account, you can liquidate the investment whenever you want. The lock-in conditions are not as stringent as any other investment instrument.
- Safety: Consider that the bank with which you have deposited money defaults. Don’t worry! You will be eligible for a maximum compensation of Rs 5 lakh from Deposit Insurance and Credit Guarantee Corporation (DICGC). This is applicable from 4th February 2020. This arrangement makes FDs a safe investment option.
- Tax Benefit:You can get a tax deduction under Section 80C of up to Rs.1.5 lakh when you make an investment on a tax-saver FD scheme with a minimum lock-in period of five years.
Limitations of FD
- Fixed Returns:Though the returns will not go south and a particular return percentage is guaranteed, the concept hinders the possibility of earning higher returns.
- Lock-in Period:FD accounts come with a specific lock-in period that is chosen by the customers themselves. The investment can be liquidated before maturity only at the cost of a penalty on the interest rate promised, which is nothing but a loss.
- Limited tax benefits:Though a 5-year tax-saver FD account is chosen by individuals to save tax in a safer way, the returns from the account are taxable under the Income Tax Act.
FD Calculator
Utilise our easy-to-useFD calculatorto check the returns you may receive when you invest a certain amount over a deposit tenure.
FD or ELSS – Which is the Best?
Take a look at the table to understand the difference between FD and Equity-Linked Savings Scheme (ELSS):
| Characteristics | Fixed Deposit (FD) Account | Equity-Linked Savings Scheme (ELSS) |
| Mechanism | A lump sum is deposited for a specified period that attracts a fixed interest rate | A type of mutual fund where a lump sum is invested where the returns are subject to market fluctuations |
| Risk Associated | Little to no risk | Low to high risk |
| Returns | Guaranteed and predictable | Not guaranteed and unpredictable |
| Lock-in Period | Minimum of 5 years | Minimum of 3 years |
| Taxability on Returns | Interest income is fully taxable | Dividend earned is not taxable |
| Loan Facility | Loan available on the deposit amount | No loan facility |
Who Should Invest in Fixed Deposit?
Fixed deposit accounts are an excellent investment vehicle for those investors who don’t want to bear any risk. If you wish to sustain the money over the years and are not looking for growing wealth or if you are looking for steady returns, you can go for FD accounts.
Many pensioners, who have a lump sum resulting from retirement, invest the money in FD accounts such that the monthly interest payout from the account can be used as spending cash.
You can also set aside a lump sum for the sake of your children or minors so they can utilise the sum at a later date for higher education. You can also use FD accounts if you are planning to build emergency funds.
Related Articles
HDFC FD Interest Rates
Indian Bank FD Interest Rates
Citibank FD Interest Rates
Axis Bank FD Interest Rates
SBI FD Interest Rates
IDFC Bank FD Interest Rates
Post Office FD Interest Rates
Canara Bank FD Interest Rates
Indian Overseas Bank FD Interest Rates
Bank of Baroda FD Interest Rates
Punjab National Bank FD Interest Rates
ICICI Bank FD Interest Rates
IDBI Bank FD Interest Rates
Kotak Bank FD Interest Rates
