Money Basics · Banks, FDs & savings

Fixed deposits

A fixed deposit (FD) is the simplest investment in India. You deposit money for a fixed period at a guaranteed interest rate. No market risk. No surprises.

How FDs work

• You choose an amount, a bank, a tenure (7 days to 10 years), and whether you want interest monthly, quarterly, or at maturity.
• The bank locks in that rate. Even if rates fall next year, you get what you signed up for.
• At maturity, you get principal + interest.

6–6.5%Typical FD rates at major private banks

7–8%Typical FD rates at RBI-licensed small finance banks

Both bands move with the RBI's repo rate. The gap between the two columns is the durable lesson; the levels are a snapshot.

Interest payout options

• Monthly/quarterly payout: interest credited to your account periodically. Good for retirees needing regular income.
• Cumulative (at maturity): interest compounded and paid at the end. Better for wealth building, more total interest due to compounding.

> A ₹1 lakh FD at 7% for 3 years: monthly payout = ₹1,21,000 total. Cumulative = ₹1,23,144 total. The difference is compounding.

One thing that maturity figure hides: FD interest gets taxed, and the bite is bigger than almost anyone expects. A later chapter pulls that apart properly.

When FDs make sense

• Emergency fund: sweep-in FD keeps money accessible
• Short-term goals (1–3 years): equity is too volatile for this timeline
• Capital preservation for seniors or risk-averse investors

For long-term goals (5+ years), equity mutual funds historically outperform FDs significantly. Don't park long-term money in FDs.

And that lock-in is less absolute than it sounds. There is a version of an FD that breaks itself the second you need the money, most people have never switched it on.

Takeaway. FDs give guaranteed returns with zero market risk. Best for short-term goals and capital preservation, not for long-term wealth building.