What is an FD? (Fixed Deposit)
A Fixed Deposit is a financial instrument offered by banks and NBFCs where you deposit a lump sum for a fixed tenure at a predetermined interest rate. FDs are one of the safest investment options in India, offering guaranteed returns regardless of market conditions.
For example, depositing ₹1 lakh at 6.5% per annum for 3 years (compounded quarterly) yields a maturity value of approximately ₹1,21,225.
FD Maturity Formula
A = P × (1 + r/n)^(n×t)
Where:
A = Maturity Amount
P = Principal (Deposit Amount)
r = Annual Interest Rate (÷ 100)
n = Compounding Frequency per Year
t = Tenure in Years
Key Features of Fixed Deposits
- Guaranteed Returns: Interest rate is locked in at the time of deposit.
- Flexible Tenures: Range from 7 days to 10 years.
- Senior Citizen Benefit: Most banks offer 0.25%–0.50% extra interest for senior citizens.
- TDS Applicability: Interest income above ₹40,000 per year (₹50,000 for seniors) is subject to TDS.
FD vs Other Instruments
- FDs are safer than mutual funds but offer lower returns in the long run.
- Premature withdrawal is allowed but typically attracts a 0.5%–1% penalty.
- Tax-saving FDs (5-year lock-in) qualify for deduction under Section 80C.
