Fixed Deposit is a kind of Term Deposit with higher interest rate (as compared to regular savings account) and because of high interest rate and low risk, it's quite a popular investment choice in India. The interest rate is fixed for the whole maturity period and, it's usually considered as an extremely safe investment. (AAA)

The interest rates differ bank to bank and also on the maturity period (usually 1-3 years of term deposits offer higher interest rate). The interest is compounded quarterly (every three months) in most banks.

Fixed Deposits have very low liquidity, and, you're not supposed to withdraw any amount (however you could take loan at low interest rate @ 1% or 2%) before maturity date. If you do, a penalty may be applied and the interest rate will be reduced. However, few banks (e.g ICICI) do offer fixed deposits with premature withdrawal facility.

You also need to pay taxes on the interest earned during a financial year, depending on your tax bracket. If you're in 30% tax bracket, it would be better if you invest in debt or liquid funds. (returns are somewhat similar but you get the benefit of indexation) For long term need, you could also look for some alternatives to FD, such as Ultra Short Bond funds or liquid funds or PPF (very safe and it has tax benefit as well - sec 80C) and setting up SIP for equity mutual funds. Investing in equity asset is risky but it has potential to generate higher returns in long term, FD would barely beat inflation and actual returns are lower if you consider inflation and taxes.

Alternatives to FD

Benefits and Limitations of FD


  • FD is very safe (AAA)
  • Stable and predicted returns (e.g 7% p.a)
  • Well suitable for conservative investors


  • FD has low liquidity (you'll earn less interest in case of premature withdrawal)
  • Low returns, when you take inflation in account, actual returns are lower. It will further reduced because of taxes (especially if you're in 30% tax brackets)
  • Not suitable for long term wealth creation or the investors with high risk appetite (e.g young investors in their 20s or 30s)

FD Interest Rates

Bank Interest
SBI 6.60%
ICICI 7.3%
HDFC 7.25%
PNB 6.90%
Axis 7.0%
Canara Bank 7.4%
Kotak Bank 6.75%
Central Bank 6.60%

Check FD interest rates for other banks.

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