FD

Fixed Deposit (FD) is a deposit placed with a bank or NBFC for a fixed tenure at a pre-agreed interest rate. Principal and interest are guaranteed by the issuer; bank FDs are additionally insured by DICGC up to Rs 5 lakh per depositor per bank.

How it works: Choose tenure (7 days to 10 years) and payout option (monthly/quarterly/at maturity). Senior citizens get a 0.50% rate bump at most banks. Premature withdrawal carries a 0.50-1.00% penalty.

Example: Rs 10,00,000 FD with a leading PSU bank for 3 years at 7.0% (quarterly compounding) matures at Rs 12,31,250. Interest is taxed at slab — for a 30%-slab investor the post-tax return drops to about 4.9%.

When to use: Emergency fund, near-term goals (1-3 years), capital-preservation buckets for retirees. Laddering across multiple tenures smooths reinvestment risk.

When NOT to use: Long-horizon wealth building in the 30% tax bracket — debt MFs (slab-taxed but with deferred-tax compounding via SWP), PPF, and equity index funds usually deliver materially better real returns over 10+ years.

Caveat: DICGC cover is Rs 5 L per bank — split large balances across banks. Co-op bank FDs carry higher credit risk despite higher headline rates.

Related terms: RD, PPF, Credit Rating.