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How does a fixed deposit work?
Quick answer
A fixed deposit works by lending your money to the bank for a fixed term. The bank uses it and pays you a guaranteed interest rate in return; the longer the term, usually the higher the rate. At maturity you get your original amount back plus the interest earned.
Step by step
- You lock a sum with the bank for a set term.
- The bank pays a guaranteed, fixed rate.
- Longer terms usually earn higher rates.
- At maturity you get principal + interest back.
People also ask
How does a fixed deposit earn interest?
The bank pays a pre-agreed rate for holding your money for the term; interest can be paid out periodically or compounded until maturity.
What happens when an FD matures?
You receive your principal plus all the interest earned; many banks can auto-renew it if you don't withdraw.
Is the FD rate fixed for the whole term?
Yes — the rate is locked when you open it, so it doesn't change even if market rates fall.
Part of the guide: Money Basics: Save, Borrow & Invest →