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Fixed Deposits remain India's most trusted savings instrument, with over Rs 200 lakh crore in outstanding bank deposits. Yet most investors don't fully understand how their returns are calculated — leading to surprises at maturity.
The difference between a 7.5% FD and an 8.75% FD over 3 years on a Rs 5 lakh deposit is over Rs 20,000 in extra interest. And that's before accounting for compounding frequency, payout type, and TDS.
This guide breaks down exactly how FD returns work, so you can make informed decisions.
When you choose a non-cumulative FD with periodic payouts (monthly, quarterly, or annually), interest is calculated using simple interest:
Interest = Principal x Rate x Time / 100
For example, a Rs 5,00,000 FD at 8.5% for 1 year:
Cumulative FDs reinvest the interest, and most banks compound quarterly. The formula is:
Maturity Amount = P x (1 + r/n)^(n x t)
Where:
For the same Rs 5,00,000 FD at 8.5% for 3 years (quarterly compounding):
Cumulative FDs always earn more because interest compounds on previously earned interest. The difference grows with tenure:
| Tenure | Cumulative Interest | Non-Cumulative Interest | Difference | |--------|-------------------|----------------------|------------| | 1 Year | Rs 43,365 | Rs 42,500 | Rs 865 | | 2 Years | Rs 90,640 | Rs 85,000 | Rs 5,640 | | 3 Years | Rs 1,43,212 | Rs 1,27,500 | Rs 15,712 | | 5 Years | Rs 2,58,721 | Rs 2,12,500 | Rs 46,221 |
Based on Rs 5,00,000 at 8.5%, quarterly compounding
Choose cumulative if you don't need regular income — your money works harder.
Choose non-cumulative if you need periodic income (retirees, supplemental income).
Banks compound interest at different intervals. More frequent compounding means slightly higher returns:
| Compounding | Effective Annual Rate (on 8.5% nominal) | 3-Year Maturity (Rs 5L) | |-------------|----------------------------------------|------------------------| | Annual | 8.50% | Rs 6,38,640 | | Half-Yearly | 8.68% | Rs 6,40,881 | | Quarterly | 8.77% | Rs 6,43,212 | | Monthly | 8.84% | Rs 6,44,459 |
Most banks use quarterly compounding. The difference between quarterly and monthly is marginal, but quarterly vs annual compounding adds Rs 4,572 on a Rs 5 lakh, 3-year FD.
Banks offer preferential rates to senior citizens (age 60+), typically 25-75 basis points higher than regular rates.
On an FD platform like Blostem that aggregates rates from 10+ banks, the impact is significant:
| Bank Type | Regular Rate | Senior Citizen Rate | Bonus | |-----------|-------------|-------------------|-------| | Small Finance Banks | 8.50-9.00% | 9.00-9.50% | +50 bps | | Commercial Banks | 7.00-7.50% | 7.25-8.00% | +25-50 bps | | NBFCs | 7.50-8.25% | 7.75-8.50% | +25 bps |
For a Rs 10 lakh FD at 1001 days tenure, the difference between 9.00% (regular) and 9.50% (senior citizen) is approximately Rs 14,500 in additional interest. Senior citizen detection happens automatically through PAN verification, which reveals the depositor's date of birth.
FD interest is fully taxable under "Income from Other Sources." Banks deduct TDS (Tax Deducted at Source) on interest income.
| Category | TDS Threshold | TDS Rate | |----------|-------------|----------| | General (under 60) | Rs 40,000/year per bank | 10% | | Senior Citizens (60+) | Rs 50,000/year per bank | 10% | | PAN not provided | Same thresholds | 20% |
Rs 5,00,000 FD at 8.5% for 1 year:
Pro tip: If your total income is below the taxable limit, submit Form 15G (general) or Form 15H (senior citizens) to avoid TDS deduction entirely.
Since TDS thresholds apply per bank, spreading deposits across multiple banks can help manage TDS. Platforms offering multi-bank FD booking make this straightforward — you can book FDs across different issuers from a single interface.
When comparing FD rates, don't just look at the headline number. Consider:
An FD offering 8.5% with quarterly compounding has an effective annual yield of 8.77%. Compare effective yields, not nominal rates.
Some banks offer significantly higher rates at specific tenures. For example, Small Finance Banks may offer special rates at 181 days, 501 days, 701 days, and 1001 days that are 50-100 basis points higher than surrounding tenures.
Always check if a slightly different tenure unlocks a materially better rate.
Bank FDs (including Small Finance Banks) are insured by DICGC up to Rs 5 lakh per depositor per bank. NBFC FDs are not covered. For amounts above Rs 5 lakh, consider splitting across banks for full insurance coverage.
Life happens. Check the premature withdrawal terms before locking in. Banks typically apply a 0.5-1% penalty on the applicable rate. Some NBFCs have 3-month lock-in periods with 1-2% penalties.
As of early 2026, FD rates are at multi-year highs, driven by RBI's monetary policy stance. Here's the approximate range:
| Issuer Category | Rate Range | Best For | |----------------|-----------|---------| | Small Finance Banks | 7.50% - 9.50% | Highest returns, fully DICGC insured | | Commercial Banks | 6.50% - 7.50% | Stability, widespread branch network | | NBFCs | 7.00% - 9.00% | Higher rates, but no DICGC insurance |
Small Finance Banks are currently offering the most competitive rates, with special tenure rates reaching up to 9.50% for senior citizens. These are RBI-regulated banks with full DICGC insurance — making them attractive for investors seeking higher returns without sacrificing safety.
Traditionally, comparing FD rates meant visiting multiple bank websites, calling branches, or reading newspaper rate tables. Modern FD infrastructure platforms aggregate rates from 10+ issuers in real-time, showing:
For fintech platforms looking to offer this capability to their users, Blostem provides this entire rate comparison and FD booking infrastructure as a single SDK integration — white-labeled to match the partner's brand.
Want to offer FD rate comparison and booking to your users? Learn about Blostem's FD infrastructure.
Get in touch with our team to discuss how Blostem can power your platform.
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