FD Interest Rates: All You Need to Know
One of the ways you can build a steady savings habit is by putting your money in fixed deposits. It is however prudent for you to compare and contrast interest rates offered and their terms prior to depositing your funds. FD interest rates enable you to estimate the profit you can expect to generate from your deposit after your pre-determined investment horizon has lapsed.
If you are interested in learning more, read on as we decode the meaning of fixed deposits and explore FD interest rates offered by top banks. So, let’s jump right in.
What is a Fixed Deposit?
A fixed deposit, commonly called an FD, is a savings instrument offered by banks, post offices and non-banking financial corporations (NBFCs). The money you invest earns returns at a predetermined fixed rate of interest for the entire investment tenure.
Once the investment tenure ends, you receive a lump sum amount composed of both your initial and interim deposits alongside the interest you earn on them through the course of investment. Alternatively, you can also choose to avail the interest as a steady income source monthly, quarterly, bi-annually or annually.
But do remember that the interest rates offered on fixed deposits differ from one financial institution to the other.
Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates
Benefits of FD
One of the most important benefits of a bank fixed deposit is the capital security offered. The Deposit Insurance and Credit Guarantee Corporation (DIGC), a subsidiary of the Reserve Bank of India (RBI), offers deposit protection of up to ₹ 5,00,000.
Some fixed deposits enable you to save on your tax expense. Under such tax-saver schemes, you can deduct investments worth up to ₹1,50,000 from your taxable income. The aforementioned amount, however, is the annual maximum limit of tax deductions under Section 80C of the Income Tax Act, 1961.
Loan Against Fixed Deposit
You can use your FD as collateral at the time of loan availment. These collateral backed loans typically carry lower interest rates than personal loans.
When your FD matures, you can simply choose to extend the tenure and direct the bank to reinvest the amount for a new term. Further, you can activate the auto-debit facility if you are sure to stay invested in fixed deposits beyond the current tenure.
Fixed deposits often come with adjustable tenures this feature gives you flexibility while determining your ideal investment horizon. According to the Reserve Bank of India’s (RBI), 2007 circular, the minimum tenure of a bank FD is 7 days.
In the case of a post office deposit, the tenures are 1, 2, 3, 4 and 5 years.
Typically, any Indian over the age of 18 can open an FD account with a bank, NBFC, or post office. An Indian citizen can also open an FD account in the name of their child and appoint a guardian for the same.
Special Interest Rates for Senior Citizens
The FD interest rates for senior citizens are typically 0.25%-0.50% higher than that offered to the general public. Furthermore, investments of this sort made by senior citizens are exempt from TDS if the interest earned on the fixed deposit is less than ₹50,000. For the remainder of the general public, the interest limit for TDS exemption is capped at ₹ 40,000.
In 2019, the RBI announced that it has raised the criteria for bulk deposits from Rs. 1 Cr to ₹ 2 Cr. The regulator allows banks to provide differential FD interest rates for bulk deposits according to their asset liability management (ALM) projections and other requirements. Typically, these bulk deposits have slightly higher interest rates than the regular small-amount FDs deposited for similar maturity tenures.
Fixed Deposit Interest Rates of Top Banks
Given below are the FD interest rates of the top 10 banks in India.
Please note that the FD interest rates given below are for the deposits valued less than ₹ 2 Cr.
|Bank Name||Tenure||Interest Rates for Regular Citizens (per annum)||Interest rates for Senior Citizens (per annum)|
|State Bank of India||7 days to 10 years||2.90% to 5.65%||3.40% to 6.45%|
|HDFC Bank||7 days to 10 years||2.75% to 5.75%||3.25% to 6.50%|
|ICICI Bank||7 days to 10 years||2.75% to 5.90%||3.25% to 6.60%|
|Axis Bank||7 days to 10 years||2.75% to 5.75%||2.75% to 6.50%|
|Punjab National Bank||7 days to 10 years||2.90% to 5.65%||3.50% to 6.45%|
|Canara Bank||7 days to 10 years||2.90% to 5.75%||2.90% to 6.25%|
|Kotak Mahindra Bank||7 days to 10 years||2.50% to 6.10%||3.00% to 6.60%|
|Bank of Baroda||7 days to 10 years||3.00% to 5.65%||3.50% to 6.65%|
|IDFC Bank||7 days to 10 years||3.50% to 6.00%||4.00% to 6.50%|
|RBL Bank||7 days to 10 years||3.25% to 5.75%||3.75% to 6.25%|
Tax Saver FD Interest Rates
As the name suggests, Tax Saver FDs bestow upon investors an array of tax benefits. Tax-saving FDs have a lock-in period of 5 years, during which you cannot withdraw the deposited funds.
One significant drawback of tax-saving FDs is that you cannot use them as collateral for loans.
The following table has compiled the best tax-saver FD interest rates in India for investments less than ₹ 2 Cr.
|Bank Name||Interest Rates for Regular Citizens (per annum)||Interest rates for Senior Citizens (per annum)|
|State Bank of India||6.10%||6.90%|
|Punjab National Bank||6.10%||6.90%|
|Kotak Mahindra Bank||6.20%||6.70%|
|Bank of Baroda||5.65%||6.65%|
Types of Fixed Deposit
Let us now try to understand the different types of FDs.
- Cumulative FDs
In a cumulative fixed deposit, the interest amount (compounded quarterly or annually) is accumulated over the tenure and added to your principal amount at maturity. Generally, the tenure of cumulative fixed deposits ranges from 6 months to five years. If you are not looking at FD as a regular source of income, consider cumulative FD. It will help you build long-term wealth through the instrumentality of compounding.
- Non-Cumulative FDs
When you invest in non-cumulative FDs, the bank regularly pays out the accrued interest. Depending on your needs, you can choose a monthly, quarterly, half-yearly, or annual interest payout frequency. Remember that FD interest rates may change depending on the chosen payout frequency.
As previously discussed, the interest payout is taxable if it crosses a certain threshold. For regular investors, the interest threshold is ₹ 40,000, whereas, for senior citizens, it is ₹ 50,000. The tenure of these non-cumulative FDs also ranges from 6 months to five years.
- FDs for Non-Resident Indians: Through their non-resident ordinary (NRO) or non-resident external (NRE) accounts, non-resident Indians (NRIs) can also open a fixed deposit in any national bank of choice. The fact that both the capital and interest received on NRE FDs are tax-free is one of the key highlights of NRI FDs. An NRO FD, however, is subject to a 30% annual tax.
- Flexi FD
In Flexi fixed deposits, you may instruct your bank to transfer a pre-discussed sum of money from your savings account over a pre-set threshold to your fixed deposit. If your account balance falls below that prescribed threshold, the bank may liquidate a portion of your FD to bring the account balance back to where it should be.
- Corporate Fixed Deposit
Like banks, several NBFCs also collect fixed deposits. These are called corporate fixed deposits. The interest rate offered is typically higher than that offered by a bank or post office. Such FDs are not insured by the Deposit Insurance and Credit Guarantee Corporation (DIGC). Therefore, there is a risk of losing your deposit if and when the corporation winds up.
- FDs Offering Tax Benefit
The Income Tax Act of 1961 allows for tax deductions on some fixed deposits. Under section 80C of the Act, a tax-saving FD with a maturity of five years is eligible for tax rebates.
How to Open a Fixed Deposit Account?
The process of opening a FD account has evolved and become user friendly over the years. You can open an account both online and offline. Let us look at both approaches.
- Visit the nearest branch of your bank.
- Fill out the prescribed form.
- Submit it with valid KYC documents such as address proof, identity proof, etc.
- Log in to your net banking account
- Select the “Open a Fixed Deposit” option.
- Select the tenure and amount, provide a nominee name and confirm your selection.
In this blog, we learnt about the benefits of fixed deposits and different bank FD interest rates segregated based on tenure and investee age. As observed, senior citizens enjoy better interest rates than regular depositors. So, go ahead and research different bank FD rates thoroughly to make an informed choice.
What is the FD interest rate at SBI in 2022?
The SBI interest on FD ranges from 2.90% to 5.65% for the general public and 3.40% to 6.45% for senior citizens. The highest interest rate on SBI FD is 6.45% for senior citizens for a tenure of 5 years or 10 years. For regular citizens, it is 5.65% for the same investment period.
Is FD interest tax-free?
The interest income earned on an FD amounting to a sum of ₹40,000 yearly for regular citizens and ₹50,000 yearly for citizens is tax-free. Interest earned over these limits will incur income tax.
What is the minimum age for opening an FD?
Any individual over the age of 18 can open a fixed deposit. Minors (as young as one year old) can also open an FD, but their guardian must sign and monitor it on their behalf.
What is an FD nomination?
An FD nomination allows depositors to appoint a person to receive the FD amount in case of their demise. While not mandatory, it is advisable to assign a nominee for your FD.