Figures are before tax. FD interest is taxable at your slab rate, and the bank deducts TDS at 10% once interest from your deposits with it crosses ₹50,000 in a financial year (₹1,00,000 for senior citizens). Breaking the deposit early usually costs a penalty of 0.5% to 1% on the applicable rate.
On a cumulative fixed deposit, interest is not paid out — it is added to the balance and earns interest itself. The maturity value follows the compound interest formula:
Where P is the deposit, r is the annual rate as a decimal, f is the number of compounding periods per year, and n is the tenure in years.
Example: ₹5,00,000 at 7% for 5 years, compounded quarterly (f = 4):
Scheduled commercial banks in India compound cumulative deposits quarterly unless the product says otherwise. The same 7% compounded at different frequencies on ₹5,00,000 over 5 years:
| Compounding | Effective annual yield | Maturity value |
|---|---|---|
| Yearly | 7.00% | ₹7,01,276 |
| Half-yearly | 7.12% | ₹7,05,299 |
| Quarterly | 7.19% | ₹7,07,389 |
| Monthly | 7.23% | ₹7,08,813 |
Roughly ₹7,500 separates the top and bottom rows on an identical headline rate — which is why the receipt's compounding line is worth reading before comparing two offers.
FD interest is fully taxable as income from other sources, at your slab rate — there is no special treatment. Banks deduct TDS at 10% once interest on your deposits with that bank crosses ₹50,000 in a financial year (₹1,00,000 for senior citizens); without a PAN on file the deduction is 20%. TDS is not the final tax: if your slab is 30%, the balance is due when you file. If your total income is below the taxable limit, Form 15G (or 15H for senior citizens) stops the deduction at source.
Interest accrues for tax purposes each year even on a cumulative deposit that pays nothing until maturity — it does not all fall into the maturity year.
For a cumulative deposit, M = P × (1 + r/f)^(f×n), where P is the principal, r is the annual rate as a decimal, f is the number of compounding periods per year and n is the tenure in years. Most Indian banks compound quarterly, so f = 4.
It is what the quoted rate actually earns in a year once compounding is included. A 7% rate compounded quarterly yields 7.19% a year; compounded monthly, 7.23%. Comparing two deposits by effective yield rather than headline rate is the only like-for-like comparison when their compounding frequencies differ.
Yes, fully, at your income tax slab rate. Banks deduct TDS at 10% once interest from your deposits with them exceeds ₹50,000 in a financial year (₹1,00,000 for senior citizens), or 20% if no PAN is on file. TDS is an advance deduction, not the final tax — any balance is settled when you file your return.
You are paid the rate that applied to the period the deposit actually ran, not the rate you booked, and most banks apply a penalty of 0.5% to 1% on top. On a long-running deposit, a loan against the FD is often cheaper than breaking it.
A cumulative deposit pays more in total, because the interest stays in the deposit and compounds. A non-cumulative deposit pays interest out monthly, quarterly or annually, so nothing compounds — it exists for people who need the income now rather than the larger total later.
DICGC insurance covers up to ₹5 lakh per depositor per bank, counting principal and interest together across all your accounts at that bank. Amounts above that are not covered, which is the argument for spreading very large deposits across banks.