How banks calculate FD interest
Most Indian banks compound fixed deposits quarterly: Maturity = P × (1 + r/4)^(4n). ₹1 lakh at 7% for 5 years grows to about ₹1.41 lakh. Post office deposits and some banks compound annually or pay simple interest, which gives a slightly lower figure.
FD rates in 2026
Large banks offer roughly 6.5–7.25% on 1–5 year deposits, small finance banks up to 8–8.5%, and senior citizens get an extra 0.25–0.5%. Tax-saving FDs have a 5-year lock-in and qualify for Section 80C.
Tax on FD interest
Interest is added to your income and taxed at your slab. Banks deduct 10% TDS if interest exceeds ₹50,000 a year (₹1 lakh for senior citizens). Submit Form 15G or 15H if your total income is below the taxable limit.
Frequently asked questions
Is FD interest compounded monthly or quarterly?
Quarterly at nearly all Indian banks. Monthly payout FDs pay a slightly discounted rate instead of compounding.
What happens if I break an FD early?
Banks pay interest for the actual period at the rate applicable to that tenure, minus a penalty of about 0.5–1%.
Are FDs safe?
Deposits up to ₹5 lakh per bank are insured by DICGC, including principal and interest.