Fixed deposit

A fixed deposit promises a known return over a known period, which is its whole appeal. You place a lump sum with a bank or the post office for a chosen term, from a few days to ten years, at a rate fixed on the day you book it. That rate does not change even if market rates fall later.

How you earn, and how it is paid

You can take a cumulative FD, where the interest is added back and compounds until maturity, or a payout FD, where it is paid out monthly, quarterly or yearly as income. A cumulative deposit grows the most, because the interest itself earns interest. Work out the maturity value in the FD calculator.

The catch most people miss

The interest is generally taxable at your income slab, and the bank cuts TDS once your interest from it crosses a yearly limit. After tax, and once inflation is counted, the real gain can be small or even negative, so your buying power quietly shrinks even while the balance grows. That is the trade-off for safety: an FD protects the amount, not always its purchasing power. See how its rate sits against other safe options in the small savings rates chart.

Safety and breaking early

Bank deposits are insured by the DICGC up to ₹5 lakh per depositor per bank, counting principal and interest together, so spreading large sums across banks keeps each pot under the cover. Breaking an FD before maturity is allowed but usually costs a penalty and a slightly lower rate. A sweep or flexi deposit is a variant that moves money back to your savings account automatically when it runs short. Next to a liquid fund an FD is more certain but less flexible; read FD vs debt fund.