Fixed deposit (FD)
A fixed deposit, or FD, is a bank deposit that locks in an interest rate for a set term. You put in a lump sum, leave it for the agreed period, and get the money back with the interest at the end. Breaking it early can cost you.
How a fixed deposit works
You choose an amount and a term, from a few months to several years, and the bank fixes the rate for that term. The rate does not change if market rates move later. At the end you receive your money plus the interest, or you can take the interest out at regular intervals.
What breaking it early costs
You can usually close an FD before the term ends, but banks normally pay a lower rate and may charge a penalty. So the money is safe but not fully free to use. That is the trade it makes: certainty and low risk in exchange for flexibility and, often, growth.
Where it fits
An FD is one of the savings-like instruments. It suits money you will need on a known date, or money you want to keep very unlikely to shrink. Over a long time its return may not keep up with rising prices, which is why people also look at other options for far-off goals.
Safety and tax
Bank deposits carry deposit insurance up to a limit per depositor per bank, and the limit can change, so check the current figure. The interest is taxable income, and tax may be deducted at source in some cases. Check the current rules or ask a tax adviser. Maetis does not give tax or investment advice.
An FD in a simple year (hypothetical numbers)
Suppose you put ₹1,00,000 into a one-year FD at 7 percent. At the end of the year you receive about ₹1,07,000. If you needed the money after six months and closed it, the bank would usually pay a lower rate for the shorter time and may deduct a penalty, so you would receive less than the full interest you were counting on.
Common questions
- What is an FD in simple words?
- A bank deposit where you lock in a set interest rate for a set period.
- Can I withdraw an FD before it matures?
- Usually yes, but the bank normally pays a lower rate and may charge a penalty.
- Is an FD risk-free?
- It is among the lower-risk options, and deposits are insured up to a limit, but its return may not keep up with rising prices over a long time.
- Is FD interest taxable?
- Yes, it is treated as income. The rules can change, so check the current treatment.