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FD Interest Rates: Important Facts and TDS Implications You Must Know


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Fixed deposits (FD) are one of the safest routes towards wealth generation. A popular financial instrument in investment portfolios, a fixed deposit does not require you to risk your savings or keep an eye on the market.

With many financial institutions offering competitive FD rates, fixed deposits have undoubtedly become a smart investment option among youngsters and seniors alike. This is all thanks to the steady interest income that these FDs can generate.

For instance, you can earn up to ₹583 as monthly interest on a ₹1 Lakh fixed deposit, assuming you have chosen a tenor of 3 years at an interest rate of 7% p.a. Similarly, you can calculate your gains for various tenors and interest rates using an FD calculator before parking your funds.

That said, having a thorough knowledge of how these interest rates are calculated can help you generate better returns. Read on to know more about the FD interest rate calculations and TDS implications.

All You Need to Know About FD Interest Rates and Calculations

When you book an FD for a specific timeline, your funds are parked for the chosen tenor at an interest rate fixed by the financial institution. Depending on the issuer, you can choose a tenor anywhere between 7 days and 10 years.

During the specific timeline, you get to earn interest on your invested amount. You can opt for a cumulative or a non-cumulative FD to receive your interest payouts. In a cumulative FD, you can access your payout at maturity or the end of the FD tenor. The matured amount includes the principal investment and interest earned on it.

When you select the non-cumulative option, you can opt for interest payouts that occur on a monthly, quarterly, half-yearly, or annual basis. This option allows you to access your interest earnings periodically and receive your invested corpus at the end of the tenor.

As an example, assume you have invested ₹1 Lakh in an AU Small Finance Bank FD for 3 years at an interest rate of 8% p.a. In such a scenario, you will earn ₹667 as monthly interest on a ₹1 Lakh fixed deposit, which is non-cumulative.

On the contrary, if you opt for a cumulative option, you will earn an interest of ₹25,971 along with your invested amount. So, your matured amount will be ₹1,25,971. Here, the power of compounding comes into play, and your interest is reinvested. This helps you accumulate significantly higher returns by the end of the FD tenor.

That said, keep in mind that your interest earnings depend on three crucial parameters:

  • Your invested amount
  • Your FD tenor
  • Applicable FD interest rate

For instance, AU Small Finance Bank FD rates for a senior investor are 0.50% p.a. higher than regular investors. This holds true in the case of most FD issuers. Likewise, you can get better FD rates when you opt for a cumulative FD plan with a longer tenor.

Here is the cardinal rule: the longer you stay invested, the higher the FD rates. Keeping these points in mind is crucial before investing in a specific scheme. You can calculate your FD interest using the simple formula:

A = P+ (1+R/N/100)


  • A stands for the maturity amount
  • P implies the amount you have invested
  • R means the applicable interest rate
  • N indicates the frequency of compounded interest

While you can calculate your interest earnings manually, the process is time-consuming and prone to errors. Therefore, it’s best to consider using an online FD calculator. All you have to do is enter the amount, interest rate, and tenor to compute your earnings instantly with just a single click.

Factors Affecting FD Interest Rates

Here are some of the important factors that can impact your FD interest rates:

Market Conditions and Economic Policy Rates

The prevailing market conditions combined with the RBI’s monetary policy are critical in the current FD interest rates you can access.

As you know, the monetary policy is implemented to regulate the money flow in the economy. This policy also governs the borrowing and lending rates in the market. Therefore, variations in interest rates form a part of monetary policy regulations.

Simply put, an increase in the repo rate leads to an increase in FD interest rates, and a decrease in repo rates forces issuers to reduce the FD rate. For instance, if there is a change in the repo rate, AU Small Finance Bank FD rates may either increase or decrease subsequently.

This is the same scenario in the case of other FD issuers. So, ensure you keep an eye on the current rates before you book an FD.

Age of the Investor

Your age plays a prominent role in the FD interest rate you can get. As a senior citizen, you get an increase in the FD rate as compared to the rates offered to regular customers. This benefit helps seniors get accelerated income in their golden years through a safe and secure FD.

Chosen Tenor

Based on your investment timeline, the issuer may offer different rates, as mentioned earlier. So, it is ideal to book a lengthy timeline to maximise your interest earnings. Also, watch out for special tenors during which issuers offer the best rates. Booking your FD for this duration can help you maximise your payout.

TDS Implications on Fixed Deposits

TDS is applicable on the interest you earn from an FD. As a regular investor, if your interest earnings exceed ₹40,000 during a financial year, tax is deducted at 10%. In case you do not have a PAN card, the FD issuer levies a 20% tax on your earnings.

On the contrary, if you are above 60 years, TDS is applicable only if your interest earnings exceed ₹50,000 in a financial year. To avoid TDS, you can submit Form 15G/15H if you are a regular/senior investor.

If your total income is less than the minimum taxable amount, no TDS is charged on the FD interest. You can submit Form 15G or 15H to claim interest income without TDS.

With various NBFCs and banks offering attractive FD interest rates, you can invest in a suitable tenor and accumulate a significant amount as monthly interest on a ₹1 Lakh fixed deposit or any other amount of your choosing. This regular interest payout mode suits investors looking to meet their monthly expenses.

On the other hand, if you want to earn sizeable returns, you may opt for your payout at maturity. Research and compare FD interest rates offered by various issuers before parking your funds in a specific plan. This will help you generate better returns and meet your financial goals.

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