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.
A second example: a 1-year CD near the US insurance limit
Put $250,000 into a 1-year fixed deposit at 4.5% APY, compounded monthly. Using the standard compound-interest formula A = P(1 + r/n)nt with P = 250,000, r = 0.045, n = 12 and t = 1, the deposit matures to about $261,486 — roughly $11,486 in interest. That amount matters for a specific reason: in the US, the Consumer Financial Protection Bureau (CFPB) notes that bank-issued CDs are insured up to $250,000 per depositor by the FDIC, and credit-union CDs up to $250,000 by the NCUA. A depositor holding exactly the insured limit as principal, plus accrued interest, can end the term slightly above the coverage threshold at that one bank — which is why savers who want full protection on a large sum often split it across insured institutions or account categories rather than parking it all in one CD.
Common mistake: assuming the early-withdrawal penalty is fixed by regulators
Many savers assume there's a single government-set penalty for cashing out an FD early. In practice, the CFPB describes the early-withdrawal fee as a term the bank or credit union sets itself and discloses in the account agreement — not a fixed regulatory percentage — so it varies by institution and by how much of the term remains. Always check the specific penalty schedule before locking money away, especially for longer tenures.
How deposit insurance differs by country
Fixed deposits are considered low-risk partly because of government-backed deposit insurance, but the limits differ by market. In the United States, the FDIC insures up to $250,000 per depositor, per insured bank, per account ownership category. In the United Kingdom, the Financial Services Compensation Scheme (FSCS) protects up to £120,000 per eligible person per authorised firm, a limit that rose from £85,000 on 1 December 2025 following a Prudential Regulation Authority review. An FD balance above the local insurance limit at a single institution carries some counterparty risk if that bank fails, which is why the limit — not just the interest rate — is worth checking before choosing where to deposit.
FD vs term deposit vs CD — same idea, different names
"Fixed deposit" is the common term in South Asia, the Gulf and much of Asia; "term deposit" is used in Australia, Canada and much of Europe; "certificate of deposit (CD)" is the US term. All three describe the same structure: a lump sum locked for a fixed term at a fixed rate. If you're also comparing this against a loan repaid in instalments, see what an EMI is for the borrowing-side equivalent of a fixed schedule.
FAQ
Is the interest on a fixed deposit taxed the same everywhere?
No — tax treatment of FD interest depends on the country and sometimes the account type; some markets tax it as ordinary income, others offer tax-advantaged savings wrappers. Check your local tax authority's rules rather than assuming FD interest is always taxed the same way as it is elsewhere.
What happens to an FD if the bank fails?
If the amount is within your country's deposit insurance limit (for example $250,000 per depositor per bank in the US, or £120,000 per eligible person per firm in the UK), the insurer pays out up to that limit even if the bank cannot. Balances above the limit at one institution are not guaranteed.
Sources
- What is a certificate of deposit (CD)? — Consumer Financial Protection Bureau (accessed 26 September 2026)
- Deposit Insurance — FDIC (accessed 26 September 2026)
- Deposit protection limit — FSCS (UK) (accessed 26 September 2026)