What is FD in Bank: Thinking of saving your money safely while earning interest? A Fixed Deposit, commonly known as FD, might be just what you’re looking for. It’s one of the simplest and most trusted ways to grow your savings without taking any risks.
In this blog, we’ll break down what an FD in a bank is, how it works, and why it’s a popular choice among Indian savers. So, if you are starting your financial journey, this guide will help you understand everything you need to know about Fixed Deposits.
Table of contents
What is FD in a Bank?
An FD in a bank means Fixed Deposit. It’s one of the popular types of bank accounts in India that offers a safe way to save money. You deposit a certain amount in the bank for a fixed time, and the bank gives you interest on it.
Full Form of FD in Banking: Fixed Deposit
A fixed deposit helps you grow your savings with guaranteed returns. But unlike a regular savings account, you can’t take out the money before the end of the fixed period without paying a small penalty.
Example of Fixed Deposit
Let’s take an example to understand how a Fixed Deposit works. Imagine you deposit INR 50,000 in an FD for one year with an interest rate of 7% per year. At the end of the year, you will receive:
- INR 50,000 (the amount you originally deposited)
- INR 3,500 (the interest earned over the year)
So, by the end of the year, your total amount will be INR 53,500. This return is guaranteed, meaning you’ll get your money back along with the interest, without any risk involved.
How Does an FD Work in a Bank?
A Fixed Deposit (FD) is a simple and secure way to save your money and earn steady returns. You invest a fixed amount with the bank for a set period, and in return, the bank gives you interest on your deposit. It’s a low-risk option that helps your savings grow without any market ups and downs.
Here’s how a Fixed Deposit works:
- You deposit a lump sum amount with the bank for a fixed duration (anywhere from 7 days to 10 years).
- The bank gives you a fixed interest rate based on the amount and period.
- You cannot withdraw the money before the maturity date without paying a small penalty.
- Once the FD matures, you get your original deposit (principal) plus the interest earned.
Also Read: How Foreign Remittance Works? Know How to Remit Money
What are the Benefits of FD in a Bank?
Fixed Deposits are a preferred choice for many savers in India, not just because they are simple but also because they offer multiple financial benefits. Whether you’re planning for short-term goals or looking for a secure long-term investment, an FD can be a reliable option.
Here are the key benefits of having an FD in a bank:
Safe and Risk-Free Investment
FDs are not linked to market fluctuations, making them one of the safest investment options. Your money stays protected throughout the tenure.
Guaranteed Returns
The interest rate is fixed at the time of deposit, so you know exactly how much you’ll earn by the end of the term.
Flexible Tenure Options
You can choose the duration that suits your needs, anywhere from 7 days to 10 years, giving you full control over your investment timeline.
Higher Interest Rates than Savings Accounts
FDs usually offer better interest rates compared to regular savings accounts, which means your money grows faster.
Loan Facility Against FD
Need funds in an emergency? You can get a loan against your FD without breaking it, usually up to 90% of the deposit amount. Many banks offer education loans against FD using fixed deposits as security. This can help students get quick loan approvals without the need for additional collateral.
Tax-saving Options (under Section 80C)
Certain 5-year tax-saving FDs offer deductions of up to INR 1.5 lakh under Section 80C of the Income Tax Act, helping you save on taxes while earning interest.
What is the Interest Earned on an FD?
The exact interest you earn on a Fixed Deposit (FD) depends on a few key factors, such as the bank you choose, how much you deposit, how long you keep the money invested, and your customer profile.
Here’s what affects the FD interest rate:
- The bank offering the FD
- Deposit amount
- FD tenure (duration)
- Customer type (general or senior citizen)
On average, most Indian banks offer FD interest rates between 6% to 8% per annum. Senior citizens usually earn an extra 0.25% to 0.75% on their deposits.
Although the Reserve Bank of India (RBI) does not directly decide FD rates, its monetary policies, like the repo rate, influence how banks set these rates.
Based on current trends (as of April 2025), many banks have updated their FD rates. Here’s a quick look at the best banks for Fixed Deposits in India offering attractive interest rates:
| Bank Name | Highest FD Rate for General Public | Highest FD Rate for Senior Citizens | Tenure for Highest Rate |
| HDFC Bank | 7.25% (10-21 months) | 7.75% (10-21 months) | 10-21 months |
| Yes Bank | 7.75% (12-24 months) | 8.25% (12-24 months) | 12-24 months |
| SBI | Not specified | Not specified | Not specified |
| ICICI Bank | Not specified | Not specified | Not specified |
| Axis Bank | Not specified | Not specified | Not specified |
| IndusInd Bank | 7.75% (1-2 years) | 8.25% (1-2 years) | 1-2 years |
| Central Bank of India | 7.50% | 8.00% | 1111 days |
Small Finance Banks often offer higher FD interest rates than regular banks. Here are some top offers:
- North East Small Finance Bank – Up to 9.00% p.a.
- Unity Small Finance Bank – Up to 8.60% p.a.
- Suryoday Small Finance Bank – Up to 8.60% p.a.
- Utkarsh Small Finance Bank – Up to 8.50% p.a.
- Jana Small Finance Bank – Up to 8.25% p.a.
Also Read: AU Small Finance Bank Minor Account: Types, Eligibility, Fees
What are the Types of FD in a Bank?
Banks offer different types of Fixed Deposits (FDs) to suit different saving needs. Each type comes with its own features, like how you deposit money, how long you keep it, and whether you can save tax on it.
Here are the most common types of FDs:
| FD Type | What It Means |
| Regular FD | A basic FD where you deposit a lump sum for a fixed time and get fixed interest. |
| Tax-Saving FD | Has a 5-year lock-in and offers tax benefits under Section 80C. |
| Senior Citizen FD | Special FD for people above 60 years with higher interest rates. |
| Flexi FD | Mix of savings + FD account. Lets you move extra money to FD automatically. |
| Recurring FD | You deposit a fixed amount every month instead of a one-time deposit. |
Which FD is Best for Whom?
- Regular FD – Great for anyone looking for a safe and steady return on a one-time deposit.
- Tax-Saving FD – Ideal for salaried individuals or taxpayers who want to save on income tax.
- Senior Citizen FD – Best for retirees or anyone over 60 looking for higher interest income.
- Flexi FD – Perfect for those who want both savings account access and FD returns.
- Recurring FD – Good for students, salaried employees, or anyone who wants to save monthly.
Difference Between Fixed Deposits (FD) vs Recurring Deposits
Both Fixed Deposits (FDs) and Recurring Deposits (RDs) are safe and reliable saving options offered by banks. They help you grow your money with fixed returns, but the way you invest in them is different.
Here’s a quick look at how they compare:
| Feature | FD (Fixed Deposit) | RD (Recurring Deposit) |
| Investment Type | One-time lump sum deposit | Monthly fixed deposits |
| Tenure | Flexible – 7 days to 10 years | Flexible – 6 months to 10 years |
| Returns | Fixed and assured | Fixed and assured |
| Ideal For | People who have a lump sum amount to invest | People who want to save small amounts regularly |
| Premature Withdrawal | Allowed with a penalty | Allowed with a penalty |
In short:
- Choose FD if you have a lump sum and want stable growth.
- Choose RD if you prefer saving a small amount every month and building a habit.
To sum up, a Fixed Deposit (FD) is a reliable way for Indian students and families to grow their savings safely. Whether you are planning for education, travel, or future expenses, investing in an FD can provide stable returns and financial security.
Check out the FAQs below for more information.
FAQs
FD or Fixed Deposit is a safe way to invest a lump sum with a bank for a fixed period and earn guaranteed interest. Benefits include assured returns, higher rates than savings accounts, flexible tenure, and tax-saving options under Section 80C.
Yes, some banks offer monthly interest payouts. It’s ideal for people who want regular income, like retirees. However, the total return may be slightly lower than cumulative FDs.
Yes, you can withdraw before maturity, but a penalty or reduced interest may apply. Some banks also allow partial withdrawal or loan against the FD.
FDs are very safe and not affected by market risks. In India, deposits up to INR 5 lakh per bank are insured by DICGC.
It depends on your need:
– Regular FD – for safe lump sum growth
– Tax-Saving FD – for tax benefits
– Senior Citizen FD – for higher interest
– Flexi FD – for liquidity + returns
– Recurring FD – for monthly savers
You can claim up to INR 1.5 lakh deduction under Section 80C with a 5-year tax-saving FD. But, interest earned is taxable.
Yes, you can. But only INR 5 lakh is insured per bank by DICGC. You may spread large deposits across banks for safety.
If you invest INR 50,000 for 1 year at 7%, you’ll earn INR 3,500 in interest. At maturity, you’ll get INR 53,500. Simple and risk-free.
It varies by bank, amount, tenure, and customer type. Most banks offer 6% to 8% annually. Senior citizens get 0.25%–0.75% extra.
To learn more about bank accounts for students, the best education loans, forex, banking experience for global students, or international money transfers, reach out to our experts at 1800572126 to help ease your experience with studying abroad.
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