The RBI held its repo rate at 6.5% in the June 2026 monetary policy review. That decision locked FD rates in a narrow band. Many urban investors began re-examining their SIP allocations as a result. Both choices involve a trade-off between certainty and growth. Knowing the exact numbers helps you choose.
FD Returns in a Steady-Rate Environment
When the repo rate stays flat, banks have little incentive to raise deposit rates. Public sector banks like SBI currently offer 6.5% to 7.25% on standard tenures. Small finance banks go higher, ranging from 8.5% to 9.5% per annum as of 2026. Senior citizens earn an additional 0.25% to 0.50% at most banks.
Fixed Deposit (FD): A savings instrument where a lump sum is locked for a fixed tenure at a guaranteed interest rate. Banks compound interest monthly, quarterly, or yearly. Returns are predictable and not linked to market movements.
FD interest compounds on previously earned interest each period. The formula is A = P × (1 + r/n)^(nt). Here, P is principal, r is the annual rate, n is compounding periods per year, and t is tenure in years. Monthly compounding at 7% yields an effective annual rate of 7.23%, versus 7.19% for quarterly. The gap widens with larger principals and longer tenures.
If you just received an annual bonus, consider this: a ₹5 lakh FD at 7.25% compounded quarterly for 5 years grows to roughly ₹7.13 lakh. Interest earned is approximately ₹2.13 lakh. When annual interest crosses ₹40,000 (₹50,000 for senior citizens), TDS applies. The bank deducts 10% with PAN, or 20% without.
Model your exact scenario using the ToolDekho FD Calculator. The calculator includes TDS and a year-by-year balance breakdown.
FD Calculator
Calculate fixed deposit maturity amount, interest earned, and TDS for any bank FD in India.
SIP Returns in the Same Period
Systematic Investment Plan (SIP): A method of investing a fixed amount in a mutual fund at regular intervals. Returns depend on market performance and the fund category chosen. SIPs are not capital-guaranteed.
Large-cap equity SIPs have delivered 10% to 13% annualised returns over rolling 5-year periods. Mid-cap and small-cap funds have averaged higher, but with greater volatility. Debt mutual funds targeting short-duration bonds currently yield 7% to 8%, closer to FD territory.
SIP returns are not guaranteed. A market downturn in year four can pull the XIRR well below FD rates for that window. The rupee-cost averaging effect reduces average buy price over time, but it does not eliminate risk.
Head-to-Head Comparison
| Factor | FD (SFB, 9% p.a.) | FD (SBI, 7% p.a.) | Equity SIP (Large-cap) |
|---|---|---|---|
| Guaranteed return | Yes | Yes | No |
| Typical 5-yr return | ~9% p.a. | ~7% p.a. | 10%–13% p.a. |
| Capital protection | Yes (DICGC up to ₹5 lakh) | Yes (DICGC up to ₹5 lakh) | No |
| Liquidity | Partial (premature withdrawal with penalty) | Partial | High (T+3 redemption) |
| Tax on returns | Slab rate (income from other sources) | Slab rate | 10% LTCG above ₹1.25 lakh |
| TDS applicability | Yes, above ₹40,000/year | Yes, above ₹40,000/year | No TDS at source |
| Section 80C benefit | 5-yr tax-saving FD only | 5-yr tax-saving FD only | ELSS funds only |
Who Should Pick What
FD suits you if: your investment horizon is under 3 years, you need capital certainty, or your income falls below the taxable limit. In that case, Form 15H eliminates TDS entirely. A ₹10 lakh lump sum sitting idle for 18 months, earmarked for a home down payment, belongs in an FD. Retirees with monthly cash-flow needs often prefer FDs for predictability.
SIP suits you if: your horizon is 7 years or more and you can tolerate short-term drawdowns. Salaried investors in the 30% bracket benefit from the lower LTCG rate on equity funds. That rate beats the slab-rate taxation applied to FD interest. A ₹10,000 monthly SIP over 10 years at 12% annualised grows to approximately ₹23 lakh, well ahead of a comparable FD.
A blended approach works for many urban households. Park the emergency fund and near-term goals in FDs. Route surplus monthly savings into diversified equity SIPs for long-term wealth creation.
Practical Tips Before You Invest
- Submit Form 15G or 15H at the start of every financial year, not only when booking the FD. Banks apply TDS on interest accrued each year if the declaration is missing.
- Check compounding frequency in your bank's FD schedule. Most public sector banks compound quarterly. Entering the wrong frequency gives a result different from the actual payout.
- DICGC insurance covers up to ₹5 lakh per depositor per bank, including both principal and interest. Spread large FD amounts across banks if the total exceeds this limit.
- For SIPs, review the fund's rolling-return data over at least 5 years before committing. A high 1-year return is not a reliable indicator of future performance.
Compare your FD maturity value against your SIP projections before finalising allocations. Use the ToolDekho FD Calculator to run the numbers. Pair it with a SIP return calculator for a complete picture.
Related reading: How TDS on FD works and how to avoid it | Best tax-saving investments under Section 80C in 2026