Written by : Knowledge Centre Team
2026-07-28
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11 minutes read
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Fixed Deposit has been a popular savings instrument in India. It is one of the safest and easiest investment options. It will help you manage your portfolio easily. You can park your savings in Fixed Deposits with banks or the post office and earn a higher rate of interest. Fixed Deposit keeps your savings safe until you decide on an appropriate allocation for the money.
Key Takeaways
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What is a Fixed Deposit?
A Fixed Deposit, commonly known as an FD, is an investment option with a limited maturity period and a fixed rate of return. Non-Banking Financial Corporations (NBFCs), banks, post-office branches, and large corporations can offer FDs to the public. You can invest your funds and receive a higher interest rate than what you receive from a regular savings account.
Key Highlights of a Fixed Deposit:
Fixed Deposits are a savings plan with a limited maturity period. You can use FDs to invest your savings for a maturity of 7 days to 10 years. The rate of interest for the deposited sum will be decided atin the beginning and will remain fixed until maturity.
You can choose to receive the periodic interest in your savings account or leave it to accumulate in your deposit. Accumulated interest on the Fixed Deposits increases the principal sum after each credit. Thus, if you do not withdraw interest from your FD, you benefit from the power of compounding.
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How Does a Fixed Deposit Work?
A Fixed Deposit (FD) is one of the most reliable and low-risk investment options. You deposit a fixed sum for a chosen tenure and earn assured interest on it.
- Steps to Start a Fixed Deposit: Let’s walk through the key steps to open and manage your fixed deposit successfully.
- Choose the FD type: Begin by selecting a suitable type of FD, Regular FDs are open to all, while senior citizen FDs are designed for those aged 60 and above. It offers better interest rates for retirement planning
- Decide the deposit amount: Determine the lump sum you want to invest. The minimum deposit usually starts at ₹1,000, and you can go higher based on your financial capacity and investment goals
- Select the tenure: You can choose a tenure ranging from 7 days to 10 years. Shorter tenures suit quick savings needs, while longer tenures offer better compounding and higher returns over time
- Interest rate determination: The interest rate depends on factors like the amount invested, the duration selected, and whether it's a regular or senior citizen FD. Longer terms generally attract slightly better rates
- Interest Payout Options: Fixed Deposits offer flexible interest payout options to suit different financial needs. Here’s how interest earnings are handled.
- Quarterly interest payout: Most banks offer quarterly interest payouts, which you can credit directly to your savings account. This option provides periodic income and is ideal for managing monthly or quarterly expenses
- Reinvestment option: You can reinvest the interest earned instead of receiving it periodically. This reinvestment leads to compounding, helping your money grow faster and maximising your returns by maturity
- Maturity and Withdrawals: Understanding how maturity works and what happens in case of early withdrawal helps you plan better.
- Payout at maturity: At the end of the chosen tenure, your principal and total earned interest are returned to you. This amount is credited to your account or reinvested if you prefer to continue the investment
- Premature withdrawal: If you withdraw before maturity, the bank may reduce the interest rate applicable to your FD. The reduction depends on how early you exit and may also include a small penalty charge
Types of Fixed Deposit Accounts
Various types of FDs are available depending on the investor type and other features. Some of the most popular types of FDs are given below:
- Standard Fixed Deposit or Term: These are the normal deposits available to resident Indians below the age of 60. The term of these deposits can range from 7 days to 10 years. The interest rate will depend on the term of the deposit.
- Senior Citizen Fixed Deposit: Senior citizen Fixed Deposits are available to investors above 60 years of age. Two major differences these Fixed Deposits have are the rate of interest and the TDS limit. The rate of interest on senior citizen fixed deposits is usually 25 basis points higher than standard FD rates. The TDS limit for the interest in these deposits is ₹100000
- Tax-Saving Deposits: Tax-saving Fixed Deposits in India are deposits specified for deduction under section 80C of the Income Tax Act 1961. These are 5-year deposits and do not offer interest payout or withdrawal before maturity. So, your investment is locked in for five years in tax-saving deposits.
Disclaimer: Tax benefits are subject to change in tax laws. Please consult your tax advisor. - Recurring Deposits: Recurring Deposits are a great way to accumulate money over a short period. You can invest in RD of 12 months to 60 months. It allows you to save a small fixed amount every month.
- Flexi Deposit: Flexi deposits or super savers are Fixed Deposits linked to your savings account. Once you start the deposit, the balance over the decided limit is automatically turned into a Fixed Deposit. If you withdraw more money from your savings account, the deposit automatically reduces the balance.
- NRI Fixed Deposits: NRI Fixed Deposits are available to NRE/NRO account holders. NRE Fixed Deposits are available in foreign currency and provide tax-free interest on the deposit. NRO FD interest is taxable at a rate of 30%.
- Corporate Fixed Deposits: Corporate Fixed Deposits are floated by large corporations, real estate companies, and businesses with significant real asset holdings. Corporate deposits also offer a fixed rate of interest. However, these FDs carry a higher risk and offer a higher return than bank FDs or NBFCs.
How to Open a Fixed Deposit Account?
Opening a Fixed Deposit (FD) is now simpler than ever, thanks to online and offline options. Here's how you can start an FD with a bank or post office.
- Opening an FD if you have a savings account: If you already have a savings account, the process is quick and hassle-free.
- Fill out the FD form: Visit the bank or post office and complete the Fixed Deposit application form with accurate details.
- Provide account information: Enter your customer ID, account number, and other relevant details as required on the form.
- Submit the form at the branch: Once filled, submit the form to the branch officer for processing. Your FD will be created shortly after verification.
- Opening an FD without a Savings Account: If you don’t have a savings account at the institution, you’ll need to provide extra documentation.
- Fill out the FD opening Form: Visit the nearest bank or post office and request the Fixed Deposit account opening form. Fill it carefully with your personal details.
- Submit KYC documents: Provide ID proof (like PAN card), address proof, and passport-size photographs to complete the KYC process.
- Make the deposit payment: Submit the deposit amount using a cheque or an ECS (Electronic Clearing Service) form. The bank will create your FD once the funds are processed
- Opening a Fixed Deposit Online: Online banking allows you to start an FD instantly from your home
- Log in to the bank website: Go to your bank’s official website and log in using your internet banking credentials. If you're using post office services, activate online access first
- Select FD details: Choose your FD type, deposit amount, tenure, and interest payout frequency (monthly, quarterly, or at maturity)
- Make payment digitally: Complete the deposit by authorising the amount from your savings account. The FD will be created immediately after successful payment
- Download the FD certificate: Once your Fixed Deposit is created, download or save the FD certificate/receipt for your records. You’ll also receive a confirmation email or SMS
How is Interest in a Fixed Deposit Calculated?
Interest payments on Fixed Deposits happen quarterly. You can choose any of the following two interest payment modes for your deposit:
Paid out to the savings account
Accumulated in the deposit until maturity
In the first scenario, the quarterly interest will be paid out, and the FD balance remains fixed for the entire term. In the second option, the interest will also earn interest.
The basic formula to calculate interest on your FD is:
Quarterly Interest Payments = Principal x Interest Rate/4
Compounded Maturity Value = Principal*(1+ROI/4)^(Term in Years x 4)
For example, you start two FDs of ₹50,000 each. FDs will pay an interest of 7% p.a. for the next five years. The interest payments from the FDs will be as follows:
Principal Amount: ₹50,000 ROI: 7% p.a. payable quarterly Interest Payment Mode: Paid out to savings account | Principal Amount: ₹50,000 ROI: 7% p.a. payable quarterly Interest Payment Mode: Paid on maturity |
Quarterly interest is paid to the depositor 50000 x 7% / 4 = ₹875 Maturity Value (final payment from FD) ₹50,875 Total interest received from the FD is₹ 17,500 | Quarterly Interest paid to the depositor will be zero, Maturity Value from the FD ₹70,739 Total interest received from the FD is ₹20,739 |
The second option will give you better absolute returns as your deposit receives the power of compounding.
Why Should you Include FD in your Investment Plan?
Fixed Deposits are among the safest investments in India. Longer-term FDs can offer better interest rates, and thus a preferred medium of depositing funds for a pension for retired investors.
Here are the important benefits of fixed deposit investments:
- Assured Return on Investment: People invest their money in a Fixed Deposit because it offers a guaranteed return on investment. Once you invest your capital in an FD (Fixed Deposit) account, you can be assured of getting the returns with a fixed rate of interest.
Banks and financial institutions regularly issue the Fixed Deposit rate of interest on their portal and financial institutions. It makes it easier for you to determine how much return they will receive.
Additionally, banks and financial institutions further hold an FD interest calculator on their portals. You can determine the interest they will earn on investing a particular amount of money for a specific period. - Flexible Term: The term of investing in a Fixed Deposit (FD) is resilient, and depends on you to fix the term of your deposits. While every bank and financial institution holds its own minimum term rules, you can make an informed decision. It is also possible to decide whether to extend the Fixed Deposit for the same term or redeem it.
- Easy Loans: An FD is a great financial instrument that you can keep aside for financial emergencies. Apart from this, you can easily take a loan against your Fixed Deposit. You can get a loan of up to 95 per cent of your accumulated FD amount, which may vary from bank to bank.
- Tax Advantages: Interest or return you receive from your FD investments is exempted up to ₹10,000 in one financial year. Apart from this, certain tax-saving Fixed Deposits have a lock-in period of 5 years and are exempted under section 80C of the Indian Income Tax Act, 1961, with up to a relief of ₹1.5 lakhs.
Disclaimer: Tax benefits are subject to change in tax laws. Please consult your tax advisor. - Interest Rates: Fixed Deposit interest rates are generally higher than those of savings accounts. Also, it offers higher interest rates for longer-term investments and senior citizens. The interest rate on a Fixed Deposit is decided at the time of the deposit and remains fixed until maturity.
- Secure Investment: A Fixed Deposit is a fixed-income debt instrument. Although the returns on FDs are lower than other investment options, it offer the safety of the capital. Banks, post offices, and NBFCs invest FD funds in government bonds and lending activities. Thus, the return on the deposit is safer than stocks.
- Liquidity: Fixed Deposits offer flexible liquidity and allow you to withdraw your funds before maturity. The process is hassle-free, and your money is typically credited within one working day.
What Role FDs Play in Your Financial Planning?
FDs can improve your financial planning by boosting your investment portfolio in several ways. The three most important aspects of including FDs in your portfolio are:
- Offer Stability to your Portfolio: FDs offer safe and fixed ROI. While your market-linked portfolio value will vary as per the market conditions, FD values will remain almost constant.
- Improved Asset Quality: Fixed Deposits, especially long-term deposits, are high-quality assets. You can borrow up to 80% of the FD value at a low rate of interest. Thus, FDs can also improve the quality of your asset portfolio.
- Available in Short-Run: High liquidity and shorter terms of Fixed Deposits are an ideal investment to fulfil short-term financial goals and offer emergency safety funds. FDs should be used for parking your emergency funds. Recurring Deposits are an easy way to invest in your short-term goals.
Conclusion
Fixed Deposits offer a reliable way to grow your savings with full capital protection. They support a range of financial needs, such as short-term goals, emergency planning, or parking idle funds. With added advantages like tax benefits and higher rates for senior citizens, it brings stability to your portfolio. With Canara HSBC Life Insurance, you can explore smart saving solutions that combine stability, tax benefits, and higher returns
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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