Fixed Deposits: Simple, Safe, Taxable

How FDs Work

A Fixed Deposit (FD) locks in a sum of money with a bank at a fixed interest rate for a fixed tenure. Interest compounds periodically — most commonly quarterly for Indian banks.

The Compounding Formula

A = P × (1 + r/f)^(f × n)

Where:

P = principal
r = annual interest rate (as decimal)
f = compounding frequency per year (4 for quarterly, 12 for monthly)
n = tenure in years

Why Compounding Frequency Matters

₹1 lakh at 7% for 5 years:

Annual compounding: ₹1,40,255
Quarterly compounding: ₹1,41,478 (+₹1,223)
Monthly compounding: ₹1,41,763 (+₹285 over quarterly)

The gap shrinks — most of the benefit is moving from annual to quarterly.

Tax on FD Interest

FD interest is fully taxable at your slab rate.
TDS kicks in if bank FD interest exceeds ₹40,000/year (₹50,000 for seniors).
5-year tax-saver FDs qualify for Section 80C deduction (but interest is still taxed).

FD vs Debt Mutual Funds

Post-2023 changes, debt funds lost their indexation benefit — FDs have become more competitive for most brackets. FDs are simpler and fully liquid at maturity.