Fixed Deposit:
What is a Fixed Deposit (FD)?
A fixed deposit is a lump sum amount kept with a bank or any other financial institution for a fixed period. Through the fixed period, this deposit earns an interest rate. This interest rate is generally higher than savings account.
FD is considered one of the most popular and safest investments in india due to its feature of safety of capital and guaranteed returns.
Advantages of Fixed Deposits:
- Fixed and Guaranteed Returns: Not affected by market fluctuations. The interest rate decided at the beginning of the investment remains applicable throughout the tenure.
- Low Risk: The risk of losing money on a bank or financial institution FD is very low. Insurance cover of up to ₹5 lakh is provided by DICGC.
- Flexible Tenor: FD can be made from 7 days to 10 years.
- Higher Interest for Senior Citizens: Investors above 60 years get higher interest rates.
- Loan Facility: An FD can be taken as collateral, providing an option for emergency needs.
- Tax Savings: FD with a lock-in period of 5 years is eligible for tax benefits under Section 80C.
- Easy Process: Opening and managing an FD account is very easy.
Types of Fixed Deposit:
1. Regular FD
Lump sum deposit: A lump sum is invested at a time.
Fixed interest rate: The interest rate is fixed throughout the investment horizon.
Tenure 7 days to 10 years: You can make an FD for a very short (one week) or very long (ten years) period. But at the time financial institution might apply penalty charges. These charges depend on the policy of that fincial institution.
2. Tax-Saving FD
5-year lock-in period: If you do a fixed deposit under this type, then you have to keep this FD for only 5 years; you cannot withdraw your money before five years. If you withdraw before the completion of the term, you might face some penalty charges. Tax-saving Fixed Deposit (FD) is a type of FD on which investment up to ₹1.5 lakh is eligible for tax deduction under Section 80C.
3. Senior Citizen FD
Special interest rate for 60+ age group: Senior citizens (aged 60 years and above) get a higher interest rate than regular FD.
4. Cumulative FD
Interest is reinvested: The interest earned is reinvested in the FD.
Total amount received at maturity: The principal amount along with interest is received together.
5. Non-Cumulative FD
Interest can be taken directly: Interest is paid as follows – monthly, quarterly or annually.
Suitable for regular income: This is suitable for those who want regular income.
6. NRE/NRO FD (NRI FD)
NRE FD (Non-Resident External): Amount transferred by NRIs from outside India; interest is tax-free
NRO FD (Non-Resident Ordinary): Amount invested by NRIs in India (e.g. from rent or investment) in a Prithvi FD; interest is not taxable.
7. Digital FD
Investment with online processing: You can easily open an FD from the bank's mobile app or our website.
Easy and fast: Less paperwork required; FD opening facility with just one click.
How is interest is calculated on a Fixed Deposit?
Simple Interest: Interest is earned only on the principal amount.
Compound Interest: The interest amount is reinvested, resulting in a higher amount at maturity.
Formula of Fixed Deposit:
A=P(1+n/r)nt
A = maturity amount, P = principal amount, r = annual interest rate, n = number of compounding years, t = years
Taxation on Fixed Deposit:
Interest on FD is taxable as 'other income' and is taxed as per your income tax slab.
Interest earned on fixed deposit is considered as other income, and it is taxable as per your income tax slab.
TDS: The bank deducts TDS (10%) if the annual interest exceeds ₹40,000 (₹50,000 for senior citizens).
Form 15G/15H: If the total income is less than the taxable limit, TDS can be avoided by filing the form
Key points:
Interest on FDs is included in your total tax liability and is taxed as per your income tax bracket ranging from 0–30%.
TDS Rate:
If you hold a PAN card, then you income will be applicable for 10% TDS. and if you have fixed deposit without pan card your income will be applicable for 20% TDS.
New Threshold (FY2025-26):
General taxpayer → TDS deduction only on interest up to ₹50,000 per annum
Senior taxpayer → Exemption up to ₹1,00,000 per annum
When TDS is deducted — When the annual interest is credited to the account.
If your total annual income is less than the tax-exempt limit, you can avoid TDS by filing Form 15G/15H.
Premature Withdrawal on Fixed Deposit:
Most FDs allow premature withdrawal, but a penalty (0.5%-1%) is charged.
Premature withdrawal is not possible in tax saving FDs.
Taking a loan against FD is a better option instead of breaking the FD.
How to open an FD account?
Online: Create your account on our website/mobile app, Complete KYC and required documents.
Offline: You can do it at your bank. You need to Visit the nearest branch and submit the application and documents. It's a very complex and time-consuming process. It is better to do a fixed deposit by using a platform like Finshak.
Required documents: Identity and address proof, PAN card, photo, cancelled cheque.
Comparison of Fixed Deposit with other investments:
Fixed Deposit (FD) is a good option for Indian investors to get safe, stable and guaranteed returns. FD provides stability to your investment portfolio. However, to get returns that are higher than inflation and to combat inflation, you should consider other investment options.
Invest in a Fixed Deposit now and secure your financial future with guaranteed returns. Reach out to us for more details and start your FD today!
