Bank Fixed Deposit (FD) has always been the first choice among Indian families and investors for complete capital security and assured returns. FD is an ideal instrument for those who want to earn fixed interest over a fixed period of time while staying away from the volatility of the stock market and the risks of mutual funds.
Recently, after the Reserve Bank of India (RBI) kept the repo rate stable, most of the large government, private and small finance banks (SFBs) have kept their FD interest rates in an attractive range of 6.50% to 8.25% per annum. Especially senior citizens get additional interest benefit of up to 0.50% compared to normal citizens.
The interest rates of banks depend on their size, liquidity needs and tenure of deposits. Currently mainstream banks and small finance banks are offering interest rates as follows:
| Bank/Institution | General Citizen (Maximum Rate) | Senior Citizen |
| State Bank of India (SBI) | 6.45% – 6.60% | 6.95% – 7.10% |
| HDFC Bank | 6.45% – 6.50% | 6.95% – 7.00% |
| ICICI Bank | 6.50% | 7.00% – 7.10% |
| Punjab National Bank (PNB) | 6.60% | 7.10% |
| Bank of Baroda (BoB) | 6.75% – 7.15% | 7.25% – 7.65% |
| DCB / bank | 7.45% – 7.50% | 7.95% – 8.00% |
| Suryoday / Unity Small Finance Bank | 8.00% – 8.25% | 8.25% – 8.50% |
(Note: Interest on bank FDs is compounded on a quarterly basis, resulting in a slightly higher actual annual yield than the basic interest rate.)
If you make a lump sum fixed deposit (Cumulative FD) of ₹5,00,000 in a bank, the estimated returns at different interest rates and tenures will be as follows:
1. Government and large private banks (average interest rate ~ 6.50% pa)
-
Over a period of 1 year:
-
Total Interest Earning: Approx ₹33,300
-
Total Maturity Amount: ₹5,33,300
-
-
Over a period of 3 years:
-
Total Interest Earning: Approx ₹1,06,700
-
Total Maturity Amount: ₹6,06,700
-
-
Over a period of 5 years:
-
Total Interest Earning: Approx ₹1,90,200
-
Total Maturity Amount: ₹6,90,200
-
2. Small Finance Bank or Special Tenure (Higher interest rate ~ 8.00% pa)
-
Over a period of 1 year:
-
Total Interest Earning: Approx ₹41,200
-
Total Maturity Amount: ₹5,41,200
-
-
Over a period of 3 years:
-
Total Interest Earning: Approx ₹1,34,100
-
Total Maturity Amount: ₹6,34,100
-
-
Over a period of 5 years:
-
Total Interest Earning: Approx ₹2,42,970
-
Total Maturity Amount: ₹7,42,970
-
Obviously, at 8% interest rate, an amount of ₹5 lakh grows to more than ₹7.42 lakh in 5 years, that is, you get a net profit of about ₹2.43 lakh in the form of interest only.
Almost all banks offer additional interest of 0.50% to senior citizens (60 years and above). If a senior citizen deposits ₹5 lakh for 5 years at the rate of 8.50%, then:
-
Total Interest Benefit: Approx ₹2,61,000
-
Total Maturity Amount: ₹7,61,000
It offers profits of around ₹18,000 to ₹20,000 more than ordinary citizens, making it a reliable option for safe investment of retirement funds.
While making FD, banks give two types of options:
-
Cumulative FD (Re-investment Plan): The interest received in this gets added to the principal amount every quarter and at the time of maturity, the entire money is received together. This is great for people who want to build wealth over the long term.
-
Non-Cumulative FD (Monthly or Quarterly Payment): In this, interest payment is deposited directly into the investor's savings account on monthly, quarterly or half-yearly basis. This option is suitable for pensioners and those seeking regular income. For example, an FD of ₹5 lakh at 7.30% per annum will yield approx. ₹3,040 Regular income can be obtained.
Subsidiary of Reserve Bank of India (RBI) DICGC (Deposit Insurance and Credit Guarantee Corporation) Under the rules of FD, the principal and interest of every depositor in all the scheduled commercial banks of the country (government, private and small finance banks) combined Deposits up to ₹5 lakh are 100% insured and completely safe It happens.
So if you want to avail 8% or more interest in a small finance bank, it is considered completely safe to deposit a principal amount of up to ₹5 lakh in a bank.
The interest earned on bank FD is fully taxable and is added to your annual income and taxed as per your respective income tax slab:
-
TDS limit: If the interest received from FD in a financial year is available to ordinary citizens ₹50,000 and for senior citizens ₹1,00,000 If the amount exceeds Rs., banks deduct TDS at the rate of 10%.
-
Form 15G/15H: If your total annual income is less than the basic exemption limit and your tax liability becomes zero, you can stop TDS from being deducted by submitting Form 15G (General Citizen) or Form 15H (Senior Citizen) in the bank.
-
Tax-Saving FD: Tax saver FDs with a lock-in period of 5 years can avail tax benefit of up to ₹1.5 lakh per year under Section 80C of Income Tax (under the old tax regime).