Definition of FD (Fixed Deposit)
A Fixed Deposit (FD) is a financial product offered by banks, NBFCs, and post offices where you deposit a lump sum for a fixed tenure at a predetermined interest rate. The capital and interest are guaranteed, making FDs one of the safest investment options in India.
Interest rates on bank FDs typically range from 6.5–7.5% for regular customers, with senior citizens getting an additional 0.25–0.50%. FDs with tenure above 5 years qualify for Section 80C tax deduction (up to ₹1.5 lakh). The interest earned on FDs is fully taxable as per your income tax slab (TDS is deducted at 10% if interest exceeds ₹40,000 per year per bank).
For long-term wealth creation (10+ years), FDs are inferior to equity mutual funds due to lower post-tax, post-inflation returns. However, FDs are ideal for capital preservation, emergency funds, short-term goals, and conservative investors who prioritize safety over growth. The 5-year tax-saver FD is a simpler but less flexible alternative to PPF or ELSS for Section 80C savings.