What is Fixed Deposit (FD)?
A deposit locked with a bank for a fixed term at a guaranteed interest rate.
An FD pays a fixed, guaranteed rate over a chosen tenure, with no market risk. Interest usually compounds quarterly and is typically taxable. It trades higher safety for lower long-term returns than equities.
Example
100,000 at 7% for 5 years (quarterly compounding) matures to about 141,478.
How a fixed deposit works
A fixed deposit (also called a term deposit or, in the US, a certificate of deposit) locks a lump sum with a bank for a chosen term at a guaranteed rate. Interest typically compounds through the term and is paid at maturity or periodically. Withdrawing early usually triggers a penalty or a lower rate, so only deposit money you won't need during the term.
FD vs savings vs investing
A fixed deposit trades flexibility for a higher, guaranteed rate than an ordinary savings account, and trades growth for safety compared with investing. It carries no market risk and is often protected by a deposit-insurance scheme up to a limit. Many people keep an FD for money they cannot afford to lose and invest separately for long-term growth.