How is FD interest calculated?
Most banks in India compound fixed deposit interest every quarter. This means interest is added to your deposit every three months, and the next quarter's interest is calculated on the bigger amount.
Worked example
Post office time deposit rates (October–December 2026)
The government keeps post office deposit rates the same for each quarter. For October to December 2026 they are unchanged from the previous quarter:
| Post office time deposit | Interest rate |
|---|---|
| 1 year | 6.9% |
| 2 years | 7.0% |
| 3 years | 7.1% |
| 5 years | 7.5% |
Bank FD rates change more often and differ by bank, so check your bank's website for its current rate before you invest.
Tax on FD interest
- FD interest is added to your income and taxed at your slab rate.
- Your bank deducts 10% TDS if your total interest from that bank goes over ₹50,000 in a year, or ₹1,00,000 for senior citizens. Under the Income-tax Act, 2025, this rule sits in Section 393(1), which replaced the old Section 194A.
- If your total income is below the taxable limit, you can submit Form 15G (or 15H if you are a senior citizen) to stop TDS.
- A 5-year tax-saver FD qualifies for the 80C deduction in the old regime, up to ₹1.5 lakh.
Frequently asked questions
Is quarterly compounding better than monthly payout?
Yes, if you don't need the money each month. With compounding, interest earns interest. A monthly or quarterly payout gives you regular income instead, but the total you receive is lower.
Do senior citizens get a higher FD rate?
Most banks pay senior citizens (60 and above) an extra 0.25% to 0.75%. Tick the senior citizen box above to add 0.50%, or type your bank's exact rate.
What happens if I break my FD early?
Banks usually pay the rate for the period the money actually stayed with them, minus a penalty of around 0.5% to 1%. Tax-saver FDs cannot be broken before 5 years.
Is my FD safe?
Deposits in each bank are insured up to ₹5 lakh per depositor by DICGC, covering both principal and interest. Post office deposits are backed by the Government of India.