FD Full Form: Fixed Deposit Rules, Interest, Penalty and Safety

Written by India Customer Care editorial team Facts checked against official sources on 31 Oct 2026 Updated 31 Oct 2026

Independent guide. We are not part of RBI, NPCI or any bank, and we never ask for your account details, PIN or OTP.

FD stands for Fixed Deposit. You place a lump sum with a bank for a fixed period, from 7 days to many years, at a rate fixed on the day you open it. You get interest as a regular payout or all at maturity. Bank FDs are insured by DICGC up to ₹5 lakh per bank; withdrawing early usually costs a penalty.

Full form

Fixed Deposit (banks call it a term deposit)

Regulator (banks)

RBI

Shortest period

7 days

Interest rate

Fixed at opening; set by each bank

Early withdrawal

Allowed on individual FDs up to ₹1 crore

Insurance

₹5 lakh per depositor per bank (DICGC)

Tax

Interest is taxable; TDS may be deducted

Current rates

Compare bank FD rates

What is an FD?

An FD is what RBI calls a term deposit: an interest-bearing deposit received for a fixed period. Recurring, cumulative, annuity and reinvestment deposits are all term deposits too.

• The rate is locked. The rate on the day you open the FD applies till maturity, even if the bank later changes its rates.
• No bargaining. RBI requires a bank's rates to be published in advance, the same at all branches and for all customers, and not negotiable. A bank may pay more only on bulk deposits (₹3 crore and above at SBI).
• Period: the bank chooses the periods it offers, but the shortest allowed is 7 days. At SBI the range is 7 days to 10 years and the minimum amount is ₹1,000.
• Where to compare: rates differ by bank and period and change often. See current rates on our interest rates page.

Cumulative vs payout: how interest is paid

When you open an FD you choose how to receive interest:

Worked example (sample rate)

Sample: ₹1,00,000 for 2 years at a sample rate of 7.00% a year. Each quarter earns 7.00% ÷ 4 = 1.75%.

Formula: maturity = principal × (1 + rate ÷ 4)^{number of quarters} = 1,00,000 × 1.0175⁸. The extra ₹888 is interest earned on interest. Real amounts depend on your bank's rate and its rounding (to the nearest rupee, as RBI requires), and TDS, if deducted, reduces what you receive.

Maturing on a holiday? If the FD matures on a non-business day, the bank pays the contracted rate for the extra day(s) until the next working day (on the maturity value for cumulative deposits).

The life of an FD

1. Open the FD online or at a branch from your savings account; the bank needs your KYC and PAN.
2. Choose the period, cumulative or payout, a nominee, and the maturity instruction (renew, or pay to your account).
3. Keep the deposit receipt or advice; check the rate, maturity date and maturity amount on it.
4. At maturity, check that the money reached your account or that the renewal is at the rate you expected.

Breaking an FD early: premature withdrawal

RBI's rules for banks (Interest Rate on Deposits Directions, 2025):

• Your right: every term deposit of ₹1 crore or less from individuals (single or joint) must allow premature withdrawal. Only above that can a bank offer "non-callable" FDs with no early exit.
• Rate you get: interest at the rate that applied to the amount and the period the money actually stayed, not the contracted rate.
• Under 7 days: no interest at all.
• Penalty: each bank sets its own penalty policy. It must tell you the penalty when you open the FD; if it didn't, it can't charge one.
• No penalty when a deceased depositor's claimants, or joint holders, only split the deposit without changing its period or total amount.

Example: the penalty at SBI

At SBI, you get 0.50% or 1% below the rate that applied, on the day you deposited, for the period the money actually stayed. Sample: a 2-year ₹1 lakh FD broken after 1 year, when SBI's 1-year rate on the deposit date was a sample 6.50%, earns 6.00% for that year. Other banks' penalties differ; check the deposit advice.

Loan or overdraft against an FD

Banks let you borrow against your own FD, either as a one-time loan or as an overdraft (OD) limit you draw from as needed. SBI offers both, keeping a margin (you can borrow somewhat less than the deposit value). The FD stays pledged until you repay; if you don't, the bank recovers the dues from it. Ask your bank for the interest rate on the loan. Tax-saver FDs can't be pledged during their lock-in.

Renewal, matured FDs and unclaimed money

• Auto-renewal: if you gave an auto-renewal instruction, the bank renews the FD on maturity under its terms. Check the interest rate on the renewal advice the bank sends you. RBI treats such a standing instruction as your own transaction, so the deposit is not treated as inoperative.
• Matured but not collected: if the FD matures and the money is left unpaid with the bank, it earns the savings account rate or the FD's contracted rate, whichever is lower. Don't leave matured money lying idle.
• Bank must remind you: where there is no renewal mandate and you haven't withdrawn the proceeds, RBI requires the bank to review it and write to you (letter, email or SMS).
• After 10 years: money unclaimed for 10 years or more, with accrued interest, is moved to RBI's Depositor Education and Awareness (DEA) Fund on the last working day of the following month.
• Still yours: there is no time limit. You or your legal heirs claim it from the bank, which pays you with interest (for interest-bearing deposits) and then recovers it from the DEA Fund.

Find a forgotten FD on UDGAM

1. Open RBI's UDGAM portal and register.
2. Enter the account holder's name, select one or more banks, and add PAN, driving licence, voter ID, passport number or date of birth. If you have none, the address can be used.
3. The result tells you the bank's claim process. UDGAM only searches; you claim at the bank. If the bank is under liquidation, approach its liquidator.

As on 4 Mar 2024, 30 banks covering about 90% of the value of unclaimed deposits in the DEA Fund were on UDGAM; others were being added.

Tax on FD interest and TDS

• Interest is taxable as your income. Show it in your ITR.
• TDS: the bank deducts tax at source when your interest crosses the limit in the Income-tax Act, 2025 (in force from 1 Apr 2026), and deposits it against your PAN. See the TDS guide for checking it in Form 168 (earlier 26AS).
• No tax payable? Give the bank Form 121 at the start of the tax year. It replaced Forms 15G and 15H from Tax Year 2026-27.
• Tax-saver FD: a term deposit of at least 5 years with a scheduled bank, under the government-notified scheme, is listed in Schedule XV of the 2025 Act; section 123 allows a deduction of up to ₹1.5 lakh a year for all Schedule XV items together. It is not allowed in the new (default) tax regime. At SBI it is locked in for 5 years (early payment only on the depositor's death), interest is compounded quarterly, deposits are ₹1,000 to ₹1.5 lakh a year, and no loan is allowed during the lock-in.

Senior citizens

Banks may, at their discretion, offer resident Indian senior citizens special FD schemes with higher, fixed rates. It is not compulsory, and the extra rate varies by bank and period. It is not available on FDs in the name of an HUF or its Karta, and not on NRE/NRO deposits. Check current senior-citizen rates on our interest rates page.

Is an FD safe? Bank vs NBFC and company FDs

Nomination

Always add a nominee: it lets the bank pay the FD quickly if you die. From 1 Nov 2025, you can name up to four nominees for a bank deposit, either simultaneously (each gets a share you fix, totalling 100%) or successively (the next nominee counts only if the one above has died). At SBI, FD nominees must be individuals.

Quick checklist before you open an FD

• Compare rates for your exact period, including the senior-citizen rate if you qualify.
• Read the premature-withdrawal penalty on the deposit form.
• Choose cumulative or payout to match your need for income.
• Add nominees, and set the maturity instruction (renew or pay out).
• Give Form 121 at the start of each tax year if you owe no tax.
• Keep each bank's total within ₹5 lakh if insurance cover matters to you.
• Never share an OTP to "renew" or "unlock" an FD. Report fraud on 1930 or cybercrime.gov.in.

Key dates

1. 24 May 2014

   RBI's DEA Fund Scheme comes into effect for deposits unclaimed for 10 years.

2. 1 Apr 2017

   SBI's current premature-withdrawal penalty (0.50% / 1%) takes effect.

3. 4 Feb 2020

   DICGC cover rises from ₹1 lakh to ₹5 lakh per depositor.

4. 4 Mar 2024

   30 banks are on RBI's UDGAM portal for finding unclaimed deposits.

5. 1 Nov 2025

   Up to four nominees allowed for bank deposits.

6. 28 Nov 2025

   RBI issues the Commercial Banks – Interest Rate on Deposits Directions, 2025 (updated as on 1 Oct 2026).

7. 1 Apr 2026

   The Income-tax Act, 2025 takes effect; Form 121 replaces Forms 15G and 15H.

FAQs