Fixed Deposit (FD) — Complete Guide 2026
A Fixed Deposit (FD) is India's most popular savings instrument — over 40 crore FD accounts exist across Indian banks. You deposit a lump sum for a fixed period at a predetermined interest rate, and receive the principal plus accumulated interest at maturity. Unlike savings accounts (2.5–4% p.a.), FDs offer significantly higher returns with near-zero risk. The principal is protected under DICGC insurance up to ₹5 lakh per depositor per bank.
As of June 2026, FD interest rates in India range from 6.25–6.60% at public sector banks, 6.25–6.50% at large private banks (HDFC, ICICI), and up to 8.1% at Small Finance Banks. Post Office 5-year Time Deposit offers 7.5% — the highest guaranteed rate among government-backed FDs.
FD Interest Rates June 2026 — Bank Comparison
| Bank / Institution | General Rate (1–3 yr) | Senior Citizen Rate | 5-Year Rate |
|---|---|---|---|
| SBI | 6.25–6.50% | 6.75–7.00% | 6.50% |
| HDFC Bank | 6.25–6.50% | 6.75–7.00% | 6.40% |
| ICICI Bank | 6.25–6.50% | 6.75–7.10% | 6.50% |
| Bank of Baroda | 6.25–6.55% | 6.75–7.05% | 6.50% |
| Post Office (5-yr) | 6.9–7.0% (1–3 yr) | Same (no extra) | 7.5% |
| Small Finance Banks | 7.5–8.1% | 8.0–8.6% | 7.5–8.0% |
How FD Interest is Calculated — Simple vs Compound
Most bank FDs use quarterly compounding, which means interest is calculated and added to your principal every 3 months. This is better than annual compounding because the effective yield is higher.
Compound Interest Formula: A = P × (1 + r/n)^(n×t) — where P = principal, r = annual rate (decimal), n = compounding frequency per year, t = tenure in years.
Example: ₹5 lakh FD at 6.5% for 3 years with quarterly compounding: A = 5,00,000 × (1 + 0.065/4)^(4×3) = 5,00,000 × (1.01625)^12 = 5,00,000 × 1.2136 = ₹6,06,800. Interest = ₹1,06,800.
If you choose monthly interest payout (non-cumulative FD), the bank calculates interest at a slightly lower effective rate because they're paying out monthly instead of compounding. Cumulative FDs always give higher maturity amounts than non-cumulative (payout) FDs.
FD Taxation — What You Actually Keep After Tax (2026)
| Tax Slab | Pre-Tax FD Rate | Post-Tax Effective Rate | ₹1L FD for 5 yrs (Net) |
|---|---|---|---|
| 0% (no tax) | 6.5% | 6.5% | ₹1,37,900 |
| 5% slab | 6.5% | 6.175% | ₹1,35,180 |
| 20% slab | 6.5% | 5.2% | ₹1,29,120 |
| 30% slab | 6.5% | 4.55% | ₹1,25,390 |
For investors in the 30% tax bracket, the post-tax FD yield of ~4.55% is below inflation (~5%). This is why high-income individuals increasingly prefer debt mutual funds (taxed as per slab but with indexation benefits for older investments) or tax-free bonds over FDs.
TDS Rules: Banks deduct TDS at 10% if annual interest income exceeds ₹40,000 (general) or ₹50,000 (senior citizens). If your total income is below the taxable limit, submit Form 15G (below 60 years) or Form 15H (senior citizens) to prevent TDS deduction. Submit at the start of each financial year.
FD Strategy Tips — Getting the Most from Fixed Deposits
- FD laddering: Instead of one large FD, create multiple FDs maturing at different intervals (1yr, 2yr, 3yr, 5yr). This ensures liquidity while capturing higher long-term rates, without penalty for premature closure of the entire amount.
- Split across banks: DICGC insures up to ₹5 lakh per depositor per bank. For amounts above ₹5 lakh, split across multiple banks to ensure full insurance coverage.
- Sweep-in FD: Link your savings account to a sweep-in FD. Idle savings above a threshold are auto-converted to FD and earn FD rates. Withdrawals break only the required portion — rest continues earning FD rates.
- Post Office FD advantage: 5-year Post Office Time Deposit at 7.5% is government-backed (unlimited safety, unlike DICGC ₹5L limit), eligible for Section 80C deduction, and beats most bank 5-year rates. However, premature closure penalty is higher.
- Tax Saver FD: 5-year Tax Saver FDs at any bank qualify for Section 80C deduction up to ₹1.5 lakh. Lock-in period: 5 years (no premature closure allowed). Available at SBI, HDFC, ICICI, and all major banks.