Question 1

How is FD interest calculated?

Accepted Answer

FD interest is calculated using compound interest formula: A = P(1 + r/n)^(nt), where P is principal, r is annual interest rate, n is compounding frequency (quarterly for most banks), and t is tenure in years. For example, Rs. 1 lakh at 7% for 5 years with quarterly compounding yields Rs. 1,41,478, earning Rs. 41,478 as interest.

Question 2

Which bank gives the highest FD interest rate?

Accepted Answer

Small finance banks and select private banks typically offer the highest FD rates in India (7-9%), while PSU banks offer 6-7.5%. Senior citizens get an additional 0.25-0.5% interest. Rates vary by tenure and deposit amount. Always check the bank's credit rating and DICGC insurance coverage (up to Rs. 5 lakh) before investing.

Question 3

Is FD interest taxable?

Accepted Answer

Yes, FD interest is fully taxable as per your income tax slab. Banks deduct TDS at 10% if annual interest exceeds Rs. 40,000 (Rs. 50,000 for senior citizens). You can submit Form 15G/15H to avoid TDS if your total income is below the taxable limit. Tax-saving FDs (5-year lock-in) qualify for Rs. 1.5 lakh deduction under Section 80C.

Question 4

Can I break FD before maturity?

Accepted Answer

Yes, most banks allow premature withdrawal of FDs with a penalty of 0.5-1% on the applicable interest rate. The interest is recalculated at the rate applicable for the actual tenure held. Some banks offer flexi-FDs that allow partial withdrawals without breaking the entire deposit. Tax-saving FDs cannot be withdrawn before 5 years.

Question 5

Should I choose monthly or quarterly interest payout?

Accepted Answer

Choose cumulative (maturity payout) option for maximum returns as interest gets reinvested and compounds. Opt for monthly/quarterly payout only if you need regular income. For example, Rs. 10 lakh at 7% for 5 years: cumulative gives Rs. 14.03 lakh while monthly payout gives only Rs. 13.82 lakh due to loss of compounding benefit.

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