Is FD interest taxable?

Yes, FD interest is fully taxable at your income tax slab rate. Banks also deduct TDS if interest exceeds a certain threshold (₹40,000 (₹50,000 for senior citizens), subject to change by the government.).

Does FD beat inflation?

Often, no. After accounting for tax and inflation, real returns on FDs are frequently close to zero or negative, especially for those in higher tax brackets.

What is the difference between cumulative and non-cumulative FD?

In cumulative FDs, interest is reinvested and paid at maturity (compounding effect). In non-cumulative FDs, interest is paid out regularly (monthly/quarterly) for income.

Do senior citizens get extra interest on FD?

Yes, most banks offer 0.25% to 0.75% extra interest rate on FDs for senior citizens compared to general public rates.

Fincado

EMI Calculator

Investment Guide

FD Guide 2025-26: Interest, Tax, and Inflation Risks

12 Min Read•Updated: Dec 2025• Data-Backed

Fixed deposits (FDs) are the most popular investment for Indian savers, yet most people misunderstand how much they actually earn after inflation and tax. This single-page guide breaks down FD interest, tax rules, senior citizen benefits, and when FDs are genuinely good—or quietly destroying your wealth.

FD Interest Calculation

FDs offer a fixed rate of interest for a fixed tenure, making them simple to understand but also easy to overestimate in terms of returns.

Simple vs Compound Interest

Most bank FDs use compound interest, not simple interest. Interest is calculated on principal plus accumulated interest at regular intervals.

Simple Interest: Interest = P × R × T

Compound Interest: A = P × (1 + R/n)^nT

(P=Principal, R=Rate, T=Time, n=Compounding freq)

Example: ₹5 Lakh FD @ 7% for 5 Years

Compounding: Quarterly (n=4)
Outcome: Effective rate > 7%. Maturity amount ~₹7.0–7.1 Lakh.

Cumulative FD

Interest is reinvested and paid at maturity. Best for long-term compounding.

Non-Cumulative FD

Interest paid out monthly/quarterly. Best for regular income (e.g., retirees).

FD vs Inflation: The Silent Killer

FDs feel "safe" because the number in your bank account always goes up. The hidden danger is that purchasing power may actually be going down.

Graph comparing nominal FD returns vs real returns adjusted for inflation

The Inflation Trap Example

Scenario: FD Rate 7% | Inflation 6%

Real Return ≈ 7% - 6% = 1%

Your money is effectively growing only about 1% in terms of actual purchasing power. If inflation hits 7%, your real return is 0%.

Key Insight: FDs protect your capital amount, but they do not guarantee protection against inflation.

FD Tax Rules

FD returns look attractive until you factor in income tax. Interest is fully taxable at your slab rate.

Taxation

Added to "Income from Other Sources".
Taxed at slab rate (up to 30% + cess).
No special lower tax rate like LTCG.

TDS Rules

Deducted if interest > ₹40k (₹50k for seniors).
usually 10% with PAN.
Submit 15G/15H to avoid TDS if income low.

Real Post-Tax Return (30% Slab)

Factor	Value
FD Rate	7%
Tax (30%)	-2.1%
Post-Tax Return	4.9%
Inflation	6%
Real Return	-1.1% (Negative)

Senior Citizen FD Benefits

For seniors, FDs are still vital due to special benefits.

Higher Interest

Typically +0.50% over regular rates. (e.g., 7.5% vs 7.0%).

SCSS Scheme

Senior Citizens' Savings Scheme offers even higher rates, quarterly payouts, and safety.

Tax Benefits

Section 80TTB allows tax-free interest up to ₹50,000 per year.

When FD Is Good

1
Short-term goals (1-3 yrs): Emergency funds, planned expenses.
2
Risk-averse investors: Zero tolerance for volatility.
3
Retirees: Needing stable monthly income.

When FD Is Bad

1
Long-term Wealth (10+ yrs): Barely beats inflation. Huge opportunity cost.
2
High Tax Slab (30%): Returns drop to ~5%.
3
Blind Renewal: Letting money sit in low rates for decades.

Final Verdict

FDs are tools for safety and stability, not wealth creation. Use them for short-term goals and emergency funds. For long-term growth, consider tax-efficient alternatives.

Capital Safety

Short Term Goals

Senior Citizens

Frequently Asked Questions (FAQs)

Fincado Research Team

Fact Checked

Our analysis is built on deep-dive research into RBI Benchmarks and lender-specific disclosures. We verify every interest rate and fee structure against real-world borrower approvals to ensure the highest level of accuracy for Indian home buyers.

Verified: Jan 2026

Methodology: Data-Driven

Editorial Guidelines

Disclaimer: This content is for educational purposes only. Interest rates and tax rules are subject to change. Always verify current bank rates before investing.

Check Your FD Returns Instantly

Use our free calculator to see maturity amounts and compare with other investments.

FD Calculator Compare with SIP