Fixed Deposit Rules and Regulations
21 Jul 2021

Fixed Deposit Rules and Regulations

Knowing the FD rules and regulations can help you make informed decisions while creating your FDs.

Key Takeaways

  • Fixed deposits allow you to invest lump sum amounts and earn interest on them
  • The interest rate varies based on your investment tenure
  • Banks usually offer a slightly higher FD interest rate to senior citizens
  • Interest earned on fixed deposits is fully taxable unless you opt for 5-year tax-saving FDs
  • You can choose your preferred interest payment method between monthly, quarterly, and cumulative interest


One of the first lessons we learn from our parents in life is the lesson of saving money. As young people, we start with piggy banks to store spare change and cash gifts we receive from our loved ones. As we mature and begin our careers, our parents begin reemphasising the virtues of savings and how they can come to our rescue on a rainy day. But the question is how to go about saving money and getting finances in order. One of the easiest ways to start saving is to collect a lump sum amount and put it away in a bank fixed deposit. Let us understand what an FD is, along with the critical fixed deposit rules and regulations. Read on.

What is a Fixed Deposit?

In simple terms, a fixed deposit (also called a term deposit) is an investment instrument wherein you can invest a lump sum amount for a specific tenure of your choosing and earn interest on it at a fixed rate. The rate of interest earned on an FD is higher than that on a regular savings account. The interest rate varies with the deposit term, i.e., the longer the tenure, the higher the interest rate offered. You can start with an amount as small as ₹5,000 and keep increasing it as you go.

Why opt for Fixed Deposits?

Fixed Deposits have traditionally been the go-to savings tool for most Indians, and it continues to remain a popular choice among young investors and millennials. Today, an FD acts like a contingency fund. It is a relatively safe, low-risk instrument that allows you to earn a fixed interest income. In addition to assured returns, you can use these deposits to meet any sudden expenses that may crop up at any point in time.

FD rules and regulations you should be aware of

Listed below are some fixed deposit rules and regulations that you should know if you are looking to open an account anytime soon.

Tax on FD interest

When you open a fixed deposit, you earn an assured income in the form of interest. The rate of interest offered on such deposits varies from one lender to another. Interest earned on fixed deposits is fully taxable. The interest you make on your FDs is clubbed with your total income and is taxed accordingly. The tax rates depend on the slab applicable to your total taxable income, as outlined under the Income Tax Act.

Income tax exemption under Section 80C

You can save on taxes if you put your money into five-year tax-saving FDs. These are eligible for tax exemption of up to ₹1.5 lakh under Section 80C of the Income Tax Act. As is apparent from the name, the minimum lock-in period for such FDs is five years.

Early withdrawal penalties

Another basic FD rule surrounds the penalties associated with withdrawals. While bank FDs can be easily liquidated in times of need, premature withdrawals usually attract a penalty. The penalty charged varies with the lender and the size or amount of the term deposit.

Insurance cover for bank FDs

All depositors are insured up to a maximum of ₹500,000 for both principal and interest amount held by them. This insurance cover is provided to banks by the Deposit Insurance and Credit Guarantee Corporation (DICGC). It is the only respite for depositors if a bank collapses due to financial duress.

Loan against FD

Some banks also offer loans against fixed deposits, usually in the form of an overdraft facility. The amount extended under this facility depends on your eligibility and the deposit size, among other things.

Benefits for senior citizens

The interest rate on FDs offered to senior citizens is usually higher than that of regular investors. Moreover, interest earned on senior citizen FDs do not attract a tax deducted at source (TDS) liability if it is less than ₹50,000 a year.

TDS on fixed deposits

Banks deduct a TDS (tax deducted at source) at 10 per cent per annum at the time of interest payment. You can account for the same at the time of filing your income tax returns (ITR). TDS on interest income is deductible only if the interest earned is above ₹40,000 per annum.

Payment Terms

Banks typically allow you to select from three different payment methods – monthly interest payout, quarterly interest payout, and cumulative interest payout. In the first two methods, you will receive your interest payout on a fixed date each month or every three months, respectively. However, if you opt for cumulative payment, you will get the interest payment when the FD matures.


Now that you know the necessary fixed deposit regulations, you can consider opening your first FD. A fixed deposit is one of the safest investment options, which enables you to earn decent interest. The returns are not market-linked, and the interest rate usually differs from bank to bank. As such, you must research interest rates and tenures before opening your FD.

Download DBS Bank app to start the paperless process of opening your fixed deposit account.