Which bank is best for fixed deposit?

Before we start hunting the interest rates of banks for the best ROI, let us understand what a fixed deposit is and how it works. A fixed deposit (FD) is one of the best “set-and-forget” options when it comes to savings. You lock in some cash for a while, let the bank do its thing, and boom—by the end of the term, it’s like your money’s gone to the gym and bulked up with interest! No market madness, no stress—just you, your cash, and a guarantee that it’ll grow. However, if you want to retire early in your 50s with a big corpus, you might want to explore growth options like Mutual Funds.

What is fixed deposit?

A fixed deposit (FD) is a financial instrument offered by banks and non-banking financial institutions (NBFIs) where you invest a lump sum for a specified period at a fixed interest rate. It’s a popular low-risk investment that provides guaranteed returns over the term of the deposit. FDs are also your best friend during emergencies. So you may always park an emergency fund in a bank of your choice.

Traditional large banks like State Bank of India (SBI) and HDFC Bank generally offer rates between 7.1%-7.6% for FDs up to 5 years, with a slight increase for older citizens. Smaller banks and small finance banks often have higher rates, especially for shorter to mid-term deposits, but may have different risk profiles and FD terms.

How Fixed Deposits Work?

Deposit: You deposit a specific amount of money for a fixed time (ranging from a few months to several years).
Interest: The bank pays you a fixed interest on this amount, which can be compounded quarterly, semi-annually, or annually.
Maturity: At the end of the term, the bank returns your principal plus interest.
Withdrawal: Early withdrawal is possible, but it may incur a penalty, and you might get a lower interest rate.

Calculation of Fixed Deposit Interest

FD interest formula is as follows:

A=P×(1+r⁄n)ˆn×t

Here’s what each term means:

A: Maturity Amount – the total amount you’ll receive at the end of the FD term, including interest.
P: Principal – the initial amount of money you invest in the FD.
r: Annual Interest Rate – the yearly interest rate offered by the bank, in decimal form (e.g., 7% becomes 0.07).
n: Compounding Frequency – the number of times interest is compounded per year (e.g., quarterly compounding means n = 4)
t: Time – the total tenure in years.

This formula calculates how much your investment grows with compound interest, which adds interest to the principal at each compounding interval.

Best Banks for Fixed Deposits

Several banks offer competitive FD rates, and the “best” choice depends on your preferences for:

Interest rate
Tenure options
Compounding frequency
Premature withdrawal rules

As of the latest rates, banks like INDUSIND, SBI, HDFC, ICICI, IDFC First Bank, and Axis offer strong FD options, while certain small finance banks may offer higher rates. Smaller banks do this to attract more customers and grow their deposit base, as they want to compete. Additionally, smaller banks have a higher risk apetite and may cater to underserved markets and lend to high-yield sectors, so higher deposit rates align with their revenue needs. Before depositing your hard earned money in any bank, do consider all the factors. Happy Saving!!