A Fixed Deposit is one of the most predictable places to put money, but the first deposit tends to come with details that a rate card does not cover. Tax is deducted at source on the interest if it crosses a limit.
The payout structure differs depending on whether you choose a cumulative or a non cumulative product. Early withdrawal is permitted at most banks, though the interest credited is usually reduced.
The FD Interest Rates vary across tenures, so the rate on a deposit held for one year will differ from what a three year deposit carries. Before opening anything, use the FD Calculator to project the maturity figure for each tenure you are considering. That comparison gives you the actual amounts rather than a percentage to interpret.
Cumulative or non-cumulative
Two structures are available on most Fixed Deposit products. A cumulative deposit earns interest in the account until maturity, with the principal and total interest paid out together at maturity. A non cumulative deposit releases the interest at regular intervals: monthly, quarterly, or annually, while the principal is returned at maturity.
If you do not need income from the deposit over the tenure, a cumulative product generally produces a higher maturity figure, as the credited interest continues to accumulate. If you need a regular payout during the period to supplement income, for instance, a non cumulative option gives you that access without breaking the deposit.
TDS on interest earned
The FD Interest Rates are counted as part of your taxable income. If the total interest credited across all your deposits at one bank in a financial year crosses ₹40,000 (₹50,000 if you are above 60), the bank deducts TDS at 10 percent before crediting the remainder. The maturity figure shown in the calculator is the gross amount. TDS reduces the actual credit you receive.
Where your total income does not cross the taxable limit, you can submit Form 15G to the bank before the financial year begins to stop TDS from being deducted. If you are above 60, Form 15H applies instead. The form must be resubmitted annually; it does not carry over automatically.
Deposit insurance
Scheduled commercial banks in India fall under the Deposit Insurance and Credit Guarantee Corporation scheme. The cover is ₹5 lakh per depositor per bank, across all deposit accounts you hold at that institution.
This cover applies to the combined total of principal and interest across all your accounts at that bank. If you intend to place more than that figure, placing the excess at a different bank keeps the full amount within the insured limit.
Laddering across tenures
A simple approach, if this is your first deposit, is to place funds across two or three different tenures rather than committing the full amount to one. A portion placed for twelve months gives you access to funds sooner.
The portion placed for a longer period stays in at the rate fixed at opening. Use the FD calculator at each maturity point to compare what the rates in place at that time produce across different tenures.
Before you open an FD
Most Fixed Deposits allow you to close the account before the maturity date, though the interest credited is recalculated at a lower rate when you do. The FD Interest Rates and penalty terms vary by bank and product.
If there is any chance you may need the funds before the tenure ends, confirm the exact penalty with the bank before opening rather than after. Some products carry a minimum lock in period before early closure is permitted.
