Fixed deposits (FDs) continue to remain a preferred investment option for conservative investors seeking stable and predictable returns. Unlike market-linked investments such as equities and mutual funds, which may witness volatility based on market conditions, FD returns are largely influenced by repo rate movements. Banks revise FD interest rates based on changes in repo rate announced by the Reserve Bank of India each quarter.
The repo rate refers to the rate at which RBI lends money to commercial banks. When the Central bank increases the repo rate, banks’ borrowing costs rise, often prompting lenders to increased to attract more deposits. In the contrary, when RBI cuts the repo rate, banks may reduce FD rates as borrowing becomes cheaper.
Among major lenders in India, including HDFC Bank, the State Bank of India (SBI), ICICI Bank, and Axis Bank, fixed deposit interest rates generally range between 6 and 7.25% on an annual basis, with senior citizens usually receiving an additional 50 basis points over the regular rates. Meanwhile, many small finance banks tend to offer comparatively higher FD interest rates.
How much will ₹1 lakh, ₹5 lakh and ₹10 lakh grow in FDs grow over time?
For investors planning to invest ₹1 lakh, ₹5 lakh, or ₹10 lakh in fixed deposits, returns can vary depending on the bank, tenure, and applicable interest rate. Public sector banks, private lenders, and small finance banks currently offer different FD rates, making it important for depositors to compare potential earnings before investing.
If you want to park money in a regular with a major public or private sector bank, interest rates currently vary from 6.05% offered by SBI to 7.1% offered by IDFC First Bank. For a three-year FD, rates range between 6.30% and 7.25% in the respective banks.
Based on current FD interest rates, here’s how much a ₹1 lakh investment will grow in different banks during different tenures:
- 3-year tenure: At 6.30% to 7.25% annual interest, the investment can grow to approximately ₹1.20 lakh to ₹1.23 lakh at maturity.
- 5-year tenure: If the investment earns an interest rate between 6.05% and 7.1%, the same ₹1 lakh can accumulate to roughly ₹1.34 lakh to ₹1.41 lakh over the investment period.
- 10-year tenure: Since the interest rate for a 10-year FD remains 6.05% at SBI and 6% at IDFC First Bank, the deposit would grow to approximately ₹1.80 lakh.
Based on the same FD interest rates, here’s how much a ₹5 lakh investment will grow in different banks during different tenures:
- 3-year tenure: At 6.30% to 7.25% annual interest, the investment can grow approximately from ₹6 lakh to ₹6.15 lakh at maturity, assuming quarterly compounding.
- 5-year tenure: If the investment earns an interest rate between 6.05% and 7.1%, the same ₹5 lakh can accumulate to roughly ₹6.79 lakh to ₹7.05 lakh over the investment period.
- 10-year tenure: Since the interest rate for a 10-year FD remains 6.05% at SBI and 6% at IDFC First Bank, the deposit would grow to approximately ₹9.10 lakh at maturity.
Based on the same FD interest rates, here’s how much a ₹10 lakh investment will grow in different banks during different tenures:
- 3-year tenure: At 6.30% to 7.25% annual interest, the investment can grow to approximately ₹12 lakh to ₹12.25 lakh at maturity.
- 5-year tenure: If the investment earns an interest rate between 6.05% and 7.1%, the same ₹10 lakh can accumulate to roughly ₹13.58 lakh to ₹14.10 lakh over the investment period.
- 10-year tenure: Since the interest rate for a 10-year FD remains 6.05% at SBI and 6% at IDFC First Bank, the deposit would grow up to ₹18.20 lakh at maturity.
However, the actual returns may vary slightly based on the bank’s compounding method (quarterly, monthly, or annually) and applicable tax deductions on interest income. Additionally, changes in the repo rate do not change the interest rate on an active fixed deposit. The rate locked at the time of opening the FD remains the same until maturity.
How are proceeds from FD upon maturity taxed?
Interest income from FDs are classified under “Income from Other Sources” and taxed based on your total slab. Under the old tax regime, FD contributions for a period of 5 years can be claimed as a deduction under section 80C, given that the total amount of deduction does not exceed ₹1.5 lakh.
Additionally, as per section 194A of the Income Tax Act, banks deduct TDS on interest earned from FDs once the interest crosses the prescribed threshold limit. The TDS rate is generally 10% if PAN details are available, while a higher rate may apply in the absence of PAN.
For FY 2025, TDS is applicable if annual interest income exceeds ₹50,000 for regular depositors and ₹1 lakh for senior citizens. Eligible depositors whose total tax liability is nil can submit Form 121 (previously Form 15G and 15H) to avoid TDS deduction, subjected to specified conditions.