Finance
How does a fixed deposit work?
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.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how a fixed deposit works.
Step by step
- 1You lock a sum with the bank for a set term.
- 2The bank pays a guaranteed, fixed rate.
- 3Longer terms usually earn higher rates.
- 4At maturity you get principal + interest back.
Frequently asked questions
- 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.