A fixed deposit locks your money for a chosen tenure at a fixed rate. Choosing the right tenure, payout option and bank — and knowing the premature-withdrawal rules — makes a big difference to what you finally earn.
Key takeaways
- FD rates depend on the tenure bucket; the highest rate is often for a specific "special" tenure.
- Cumulative FDs compound interest (usually quarterly) and pay at maturity; non-cumulative FDs pay monthly/quarterly.
- Premature withdrawal usually costs 0.5%–1% lower interest than the rate for the period actually held.
- Deposits up to ₹5 lakh per depositor per bank are insured by DICGC.
Cumulative vs non-cumulative
| Feature | Cumulative | Non-cumulative |
|---|---|---|
| Interest | Reinvested, compounding | Paid out |
| Best for | Growth | Regular income |
| Effective yield | Higher | Lower (monthly payout slightly discounted) |
Example: ₹5 lakh at 7% for 3 years, quarterly compounding → maturity ≈ ₹6.16 lakh.
How premature withdrawal is calculated
Rate applied = rate for the period actually completed − penalty.
Example: 3-year FD at 7.25%, closed after 1 year when the 1-year rate was 6.8% and penalty 1% → you earn 5.8% for the year.
Choosing tenure
- Match tenure to when you need the money.
- Consider an FD ladder to keep liquidity — see FD laddering.
- Senior citizens usually get 0.25%–0.75% extra.
Other checks
- Auto-renewal instructions at maturity
- Loan / overdraft against FD (typically up to 90% of deposit)
- TDS and Form 15G/15H — see FD taxation basics
Compare current rates on our Fixed Deposit hub.
Your action checklist
- Compare rates for the exact tenure you need across 3–4 banks.
- Decide between cumulative and payout options based on cash needs.
- Stay within ₹5 lakh per bank for full DICGC cover.
- Submit Form 15G/15H at the start of the financial year if eligible.
- Give clear maturity instructions — renew, pay out or ladder.
FAQs
Is a small finance bank FD safe?
Scheduled SFBs are covered by DICGC up to ₹5 lakh per depositor per bank.
Can I break only part of an FD?
Some banks allow partial withdrawal; otherwise split your money into several FDs.
