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Everything You Need to Know About Fixed Deposits
Smart FD Investment Tips
- Compare FD rates across banks - even 0.25% difference matters
- Senior citizens get 0.5% extra interest in most banks
- Break large FDs into smaller ones for liquidity flexibility
- Consider laddering FDs with different maturity dates
- Tax-saver FDs offer 80C deduction but have 5-year lock-in
- Interest above ₹40,000 attracts TDS @10% (₹50,000 for seniors)
- Submit Form 15G/15H to avoid TDS if income is below taxable limit
- FDs up to ₹5 lakhs are insured by DICGC per bank
- Choose cumulative option for better returns through compounding
Understanding Fixed Deposits
Fixed Deposit (FD) is a financial instrument where you deposit a lump sum for a fixed tenure at a predetermined interest rate. It's one of the safest investment options.
Maturity Value Formula:
A = P × (1 + r/n)^(n×t)
Where P = Principal, r = Annual rate, n = Compounding frequency, t = Time in years
Types of FDs:
- Regular FD: Standard fixed deposit with flexible tenure
- Tax-Saver FD: 5-year lock-in with 80C tax benefits
- Senior Citizen FD: Higher interest rates for 60+ age
- Flexi FD: Links to savings account for auto-sweep
Frequently Asked Questions
What is the minimum amount for FD?
Most banks require a minimum of ₹1,000 to ₹10,000. Post Office FDs start from ₹1,000. Online banks may offer FDs starting from ₹5,000.
Which is better - cumulative or non-cumulative FD?
Cumulative FDs reinvest interest for compounding benefits, ideal for wealth creation. Non-cumulative FDs provide regular income through periodic payouts, suitable for retirees.
Can I break FD before maturity?
Yes, but you'll face a penalty of 0.5-1% on the interest rate. Some banks also charge additional fees. Tax-saver FDs cannot be broken before 5 years.
How is FD interest taxed?
FD interest is taxable as per your income tax slab. TDS of 10% applies if interest exceeds ₹40,000 (₹50,000 for seniors). Submit Form 15G/15H to avoid TDS if eligible.
Is FD better than mutual funds?
FDs offer guaranteed returns with no risk, suitable for conservative investors. Mutual funds can give higher returns but with market risk. Ideal portfolio has both.
What happens to FD after maturity?
On maturity, the FD amount is credited to your linked account. Many banks offer auto-renewal where the FD is renewed for the same tenure at prevailing rates.
Are FDs safe?
Yes, FDs are among the safest investments. Deposits up to ₹5 lakhs per bank are insured by DICGC. Choose banks with high credit ratings for amounts above ₹5 lakhs.
Complete Fixed Deposit Investment Guide
Everything you need to know about FD investments in India
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