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Verified by Fixed Income & Banking Research Desk
Last Updated: Updated for FY 2026–27 (AY 2027–28)
Authority: RBI Master Direction - Interest Rate on Deposits & Section 194A Income Tax Act
Bank Fixed Deposit (FD) Quick Summary (FY 2026–27)A Fixed Deposit (FD) is a secure investment where you deposit a lump sum in a bank at a fixed interest rate for a predetermined tenure. Indian banks compound interest quarterly, generating higher effective annual yields (APY). Deposits are insured up to ₹5 Lakhs by the RBI's DICGC, with 10% TDS deducted under Section 194A if annual interest exceeds ₹40,000 (₹50,000 for seniors).
RBI Compounding Standard • DICGC ₹5 Lakh Insured (FY 2026–27)

Bank Fixed Deposit (FD) Calculator

Quarterly compounding, monthly pension payouts, Section 194A TDS & bank rate presets

Effective Yield (APY)7.29%Quarterly Compounded
₹
₹10,000₹1,00,00,000

Minimum ₹1,000. DICGC sovereign insurance covers up to ₹5,00,000 per bank.

Selected: 7.1% p.a.
%
3%9.5%

Check popular Indian bank rate presets below or adjust manually:

Presets:
3 Yrs
0 Mos
Total Maturity Value₹6,17,538Tenure: 3 Years @ 7.1% p.a.
Total Interest Earned₹1,17,538Total Principal: ₹5,00,000
Effective Annual Yield7.29%Boosted by 4 compounding cycles per year
Section 194A TDS Status₹0 (No TDS)Threshold: ₹40,000/yr
Deposit Breakdown
Total Return₹6,17,538
Principal Deposit
₹5,00,000(81.0%)
Interest Earnings
₹1,17,538(19.0%)

Deposit Exceeds ₹5 Lakh DICGC Cover

₹5,00,000 is 100% insured by DICGC. The remaining ₹1,17,538 carries bank credit risk. Consider splitting deposits across 2 or more scheduled commercial banks.

Form 15G / 15H TDS Exemption

Submit Form 15G (General) or Form 15H (Senior Citizens) to your bank branch or online banking at the start of each financial year if your total taxable income is below standard exemption limits.

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How Fixed Deposit Interest is Calculated (Official Rules & Guidelines)

In Indian commercial banking, fixed deposit interest calculation depends strictly on whether you choose a Cumulative FD (reinvestment option) or a Non-Cumulative FD (regular interest payout).

Official RBI Quarterly Compounding Formula:

Maturity Amount (A) = Principal × [ 1 + (Annual Rate / 400) ]^(4 × Tenure in Years)

Because interest compounds every 3 months (quarterly), the effective annual rate (APY) is always higher than the nominal rate. For example, a nominal rate of 7.00% compounds to an effective annual yield of 7.19%.

Section 194A TDS Rules

TDS @ 10% is deducted if your aggregate interest across all branches of a single bank exceeds ₹40,000/year (or ₹50,000/year for senior citizens). If PAN is not provided, TDS jumps to 20%. Submit Form 15G or 15H at the beginning of April to avoid TDS.

DICGC ₹5 Lakh Insurance Cover

Every scheduled commercial bank in India is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). Each depositor is insured up to ₹5,00,000 (inclusive of principal and interest) across all accounts in the same bank.

Realistic Worked Examples (FY 2026–27 Statutory Returns)

Case 1: ₹5 Lakhs in a 3-Year Cumulative FD @ 7.10%

IT Professional Investing Savings in SBI / HDFC Bank

Depositing ₹5,00,000 for 3 years (12 quarters) with quarterly compounding reinvestment:

  • Principal Deposit: ₹5,00,000
  • Quarterly Compounding Cycles: 12 Quarters
  • Effective Annual Yield: 7.29% APY
  • Total Interest Earned: ₹1,17,538
  • Maturity Proceeds: ₹6,17,538
  • DICGC Safety: 100% Insured under ₹5L principal baseline
Case 2: Senior Citizen Investing ₹10 Lakhs in a Monthly Payout FD @ 7.50%

Retired Professional Needing Monthly Household Income

Depositing ₹10,00,000 for 3 years with monthly interest credit directly into savings account:

  • Monthly Guaranteed Payout: (₹10,00,000 × 7.50%) / 12 = ₹6,250 / month
  • Annual Interest Received: ₹6,250 × 12 = ₹75,000 / year
  • Section 80TTB Exemption: First ₹50,000 is 100% tax-free for seniors
  • 3-Year Total Pension Income: ₹2,25,000
  • Principal at Maturity: ₹10,00,000 refunded in full.

Fixed Deposit Maturity & Interest Matrix (Cumulative @ 7.00% p.a.)

Deposit Amount1-Year Maturity1-Yr Total Interest3-Year Maturity3-Yr Total Interest5-Year Maturity5-Yr Total Interest
₹1,00,000₹1,07,186₹7,186₹1,23,144₹23,144₹1,41,478₹41,478
₹2,50,000₹2,67,965₹17,965₹3,07,860₹57,860₹3,53,695₹1,03,695
₹5,00,000₹5,35,930₹35,930₹6,15,720₹1,15,720₹7,07,389₹2,07,389
₹10,00,000₹10,71,859₹71,859₹12,31,439₹2,31,439₹14,14,778₹4,14,778
₹25,00,000₹26,79,648₹1,79,648₹30,78,598₹5,78,598₹35,36,946₹10,36,946
₹50,00,000₹53,59,295₹3,59,295₹61,57,197₹11,57,197₹70,73,892₹20,73,892

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Frequently Asked Questions (Bank Fixed Deposits)

How is Fixed Deposit (FD) interest compounded in Indian banks?▼
Under Reserve Bank of India (RBI) master directives, commercial banks in India compound fixed deposit interest on a quarterly basis (4 times per year). For cumulative FDs, interest earned in each quarter is added to the principal to form the new base for subsequent quarters. For non-cumulative FDs, interest is paid out monthly (at a discounted present value) or quarterly without compounding.
What is the TDS threshold on FD interest under Section 194A for FY 2026–27?▼
Under Section 194A of the Income Tax Act: (1) For regular depositors below age 60, banks deduct 10% TDS if total annual interest across all branches of a single bank exceeds ₹40,000; (2) For senior citizens aged 60 and above, TDS applies only if annual interest exceeds ₹50,000. You can submit Form 15G (General) or Form 15H (Senior Citizens) to waive TDS if your total estimated annual income is below the taxable slab.
Are bank fixed deposits 100% safe in India?▼
Yes, up to the statutory guarantee limit. All deposits (principal plus accrued interest) in scheduled commercial banks, small finance banks, and co-operative banks are insured up to ₹5,00,000 (₹5 Lakhs) per depositor per bank by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India. If investing more than ₹5 Lakhs, it is prudent to distribute funds across multiple independent banks.
What are the rules for premature withdrawal of a bank FD?▼
Most commercial banks permit premature withdrawal of fixed deposits, subject to a penal interest deduction of 0.50% to 1.00%. The interest rate applied is the contracted rate or the rate applicable for the period the deposit actually remained with the bank (whichever is lower), minus the 0.50%–1.00% penalty. Note that 5-year tax-saving FDs under Section 80C have a strict mandatory 5-year lock-in and cannot be prematurely closed under any circumstance.
What is the extra interest rate offered to senior citizens on FDs?▼
Most Indian banks offer an additional 0.50% p.a. interest to resident senior citizens (aged 60 to 79) across all standard tenures. Additionally, several public sector banks (like PNB, Indian Bank, and Union Bank) offer an extra 0.25% to 0.30% (total +0.75% to +0.80% above general rates) for "super senior citizens" aged 80 and above.