Understanding Fixed Deposits (FD) and How They Work

Last updated February 18, 2025

What is a Fixed Deposit (FD)?

A Fixed Deposit (FD) is a savings scheme where you deposit money for a fixed period and earn interest at a predetermined rate. Unlike regular savings accounts, FDs offer higher interest rates and guaranteed returns.

Key Features of Fixed Deposits

✅ Fixed Tenure – Choose from 7 days to 10 years.

✅ Higher Interest Rates – Typically higher than savings accounts.

✅ Low Risk – Your principal amount is secure.

✅ Premature Withdrawal – Allowed with a penalty in most cases.

✅ Loan Against FD – Borrow up to 90% of the FD amount.

How to Open an FD?

Choose a Bank or Financial Institution – Compare interest rates.
Select Tenure & Amount – Based on your financial goals.
Submit KYC Documents – Provide ID proof, address proof, and PAN.
Deposit Funds – Online or through a bank branch.
Receive FD Receipt – A document confirming your investment details.

Types of Fixed Deposits

Regular FD – Standard fixed deposit with fixed interest.
Tax-Saving FD – 5-year lock-in, tax benefits under Section 80C.
Senior Citizen FD – Higher interest rates for 60+ years.
Recurring Deposit (RD) – Monthly deposits instead of a lump sum.

FAQs

Can I withdraw my FD before maturity? Yes, but a penalty may apply, reducing interest earnings.
Is the FD interest taxable? Yes, if the interest exceeds ₹40,000 (₹50,000 for seniors) per year.
What happens when my FD matures? You can withdraw funds or renew the FD for another term.
Can I open multiple FDs? Yes, there’s no limit to the number of FDs you can hold.
What is the minimum amount required for an FD? It varies by bank but usually starts at ₹1,000.