What Is FD vs CD Explained — How Fixed Deposits and Certificates of Deposit Work in India and the US
By Tapabrata Biswas · Last updated May 21, 2026 · 10 min read
Researched with AI assistance, reviewed and edited by Tapabrata Biswas.
A ₹5 lakh fixed deposit at an SBI 1-year tenure paid 6.80% in Q1 2026 — maturity value ₹5,34,000 after one year. The same ₹5 lakh in an AU Small Finance Bank 1-year FD paid 7.85% — maturity ₹5,39,250. Same DICGC coverage, same lock-in, same simple-vs-cumulative options — but the bank choice pockets ₹5,250 of extra interest on a single year's deposit. Across a 5-year tenure with compounding, that gap widens to roughly ₹35,000 on the original ₹5 lakh — bigger than most households' annual mutual-fund SIP totals.
This post covers what an FD (India) and CD (US) actually are, why they're the same instrument under different names, current Q1 2026 rates across major banks, the math of compounding, the early-withdrawal penalty, deposit insurance coverage, and when an FD/CD is the right choice versus a savings account or a high-yield savings account. To plug in your own numbers, use our free FD / CD Maturity Calculator — compares three tenures side by side in INR or USD with adjustable compounding frequency.
What an FD (India) and a CD (US) actually are
A Fixed Deposit (FD) in India and a Certificate of Deposit (CD) in the US are both time deposits — a category of bank deposit where the depositor commits a specific lump sum to the bank for a specific tenure (the "term") in exchange for a fixed interest rate locked in at the time of booking.
Three properties define the instrument in both countries:
Fixed rate, locked in at booking. The rate quoted on the day you book the deposit is the rate you earn for the entire tenure, regardless of what happens to the bank's published rates after that day. If you book a 1-year FD at 7% and the bank's 1-year rate drops to 6% the next month, you still earn 7% on your existing FD. The reverse also applies — if rates rise, you don't capture the upside without breaking the FD.
Fixed tenure with maturity date. Tenures in India range from 7 days to 10 years (most banks offer 6-month, 1-year, 2-year, 3-year, and 5-year standard buckets, plus variable months in between). Tenures in the US range from 3 months to 5 years (some banks offer up to 10 years). The maturity date is the only date you can withdraw the principal plus interest without penalty.
Early-withdrawal penalty. Both countries penalise breaking the deposit before maturity — Indian banks typically charge a 1% penalty on the applicable rate, US banks typically charge 3-6 months of interest. The penalty is the consideration the bank charges for the certainty of the deposit being there for the booked tenure.
The terminology difference is purely regional convention. Banking products that work this way have been called "fixed deposits" in India and many Commonwealth countries since the colonial era; the same product in the US has been called "certificate of deposit" since the late 1800s when banks issued paper certificates as evidence of the deposit. The instruments are mechanically identical.
How the interest math works
The standard FD/CD interest formula uses compound interest with the bank's specified compounding frequency:
Maturity Amount = Principal × (1 + rate/compounds_per_year)^(compounds_per_year × years)
In India, most banks compound quarterly. A ₹1 lakh FD at 7% for 1 year with quarterly compounding:
₹1,00,000 × (1 + 0.07/4)^4 = ₹1,07,186
So the effective annual yield is 7.186%, slightly above the 7% nominal rate because of the quarterly compounding. The bank typically quotes the nominal rate; the maturity value reflects the compounded amount.
In the US, most banks compound monthly or daily. A $10,000 CD at 5% APY for 1 year:
$10,000 × 1.05 = $10,500
US banks quote APY (Annual Percentage Yield), which already incorporates the compounding effect, so the APY is the directly comparable number across banks regardless of compounding frequency. A 5% APY at one bank and a 5% APY at another produce the same maturity value on the same principal for the same tenure.
The two countries also differ on payout options:
Cumulative FD (India default for many tenures). Interest accumulates and compounds inside the FD, paid as a lump sum at maturity.
Non-cumulative FD (India). Interest is paid out monthly, quarterly, half-yearly, or annually to the linked savings account — useful for retirees needing regular income, similar to the Post Office Monthly Income Scheme.
US CD. Default is interest paid monthly or quarterly to the linked savings account, though some banks offer compounding CDs.
Current Q1 2026 rates — India FD and US CD compared
India — FD rates (1-year tenure, non-senior, Q1 2026)
| Bank | 1-year FD rate | Senior citizen rate |
|---|---|---|
| SBI | 6.80% | 7.30% |
| HDFC Bank | 6.60% | 7.10% |
| ICICI Bank | 6.70% | 7.20% |
| Axis Bank | 6.70% | 7.45% |
| Kotak Mahindra Bank | 7.10% | 7.60% |
| IDFC FIRST Bank | 7.25% | 7.75% |
| Bandhan Bank | 7.25% | 7.75% |
| AU Small Finance Bank | 7.85% | 8.35% |
| Equitas Small Finance Bank | 8.20% | 8.70% |
| Ujjivan Small Finance Bank | 8.25% | 8.75% |
(Source: respective bank websites, Q1 2026. Rates subject to change every few weeks based on RBI repo rate movements.)
US — CD rates (12-month tenure, Q1 2026)
| Bank | 12-month CD APY | Notes |
|---|---|---|
| Chase | 0.05% | Traditional bank baseline |
| Bank of America | 0.05% | Traditional bank baseline |
| Marcus by Goldman Sachs | 4.80% | Online direct bank |
| Synchrony Bank | 4.85% | Online direct bank |
| Discover Bank | 4.70% | Online direct bank |
| Bread Savings | 5.00% | Online direct bank |
| Capital One 360 | 4.55% | Online direct bank |
| Fidelity (brokered CD) | 5.10–5.25% | Brokered CD via brokerage account |
(Source: respective bank websites; FDIC weekly national rates Q1 2026.)
The pattern in both countries: smaller and newer banks pay materially higher rates than the largest legacy institutions to attract deposits — small finance banks in India, online direct banks in the US. The DICGC and FDIC insurance coverage is identical regardless of which bank you choose, so the rate differential is essentially free yield available to anyone willing to open an account at a less-familiar bank.
A worked example — picking the right bank
Take ₹5 lakh deposited into a 3-year cumulative FD with quarterly compounding:
| Bank | Rate | Maturity value | Interest earned |
|---|---|---|---|
| SBI 3-year FD at 6.50% | 6.50% | ₹6,06,790 | ₹1,06,790 |
| HDFC 3-year FD at 6.60% | 6.60% | ₹6,08,575 | ₹1,08,575 |
| AU SFB 3-year FD at 7.50% | 7.50% | ₹6,24,930 | ₹1,24,930 |
| Equitas SFB 3-year FD at 8.00% | 8.00% | ₹6,33,950 | ₹1,33,950 |
The Equitas option earns ₹27,160 more interest than SBI on the same ₹5 lakh principal over the same 3 years. The DICGC ₹5 lakh coverage applies to both banks equally, so a single ₹5 lakh deposit is fully insured at either choice. The trade-off is mostly perceptual — small finance banks have shorter operating histories than SBI, but their deposit insurance is identical.
The US equivalent calculation comparing a Chase 1-year CD at 0.05% versus a Marcus 1-year CD at 4.80% on $10,000:
- Chase: $10,000 × 1.0005 = $10,005, $5 interest earned.
- Marcus: $10,000 × 1.048 = $10,480, $480 interest earned.
Net difference: $475 on the same instrument for the same year, purely from picking a different bank with the same FDIC coverage.
Deposit insurance — DICGC and FDIC coverage
India — DICGC. The Deposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the Reserve Bank of India, insures deposits up to ₹5 lakh per depositor per bank (raised from ₹1 lakh in February 2020). Coverage includes savings, current, recurring deposit, and fixed deposit balances at the same bank, combined. So a depositor with ₹3 lakh in savings plus ₹3 lakh in FDs at the same bank has only ₹5 lakh insured, not ₹6 lakh. The fix for balances above ₹5 lakh is to split deposits across multiple DICGC-member banks (almost every commercial bank in India is a member).
US — FDIC. The Federal Deposit Insurance Corporation insures deposits up to $250,000 per depositor per insured bank per ownership category. CDs and savings accounts together count toward the $250,000 limit at a single bank in a single ownership category. The same workaround applies — splitting across multiple FDIC-insured banks or using sweep networks restores full coverage on each tranche.
For both countries, the deposit insurance is the structural reason FDs and CDs are considered among the safest possible investments for the insured amount — the worst-case loss is bounded by the insurance limit, and the insurance pays out within days if the bank fails.
When an FD or CD is the right choice
FDs and CDs are the right product when:
- You have a lump sum that you genuinely won't need until a specific future date (kid's school fee in 2 years, planned car purchase in 3 years, retirement bridge funds)
- You want guaranteed return certainty (the rate is locked at booking, immune to subsequent market movements)
- You're in India and want returns above the 2.5–4% savings account range without taking equity-market risk
- You're a US saver with $5,000+ in idle cash that doesn't need to be liquid — a CD usually beats most savings accounts at the same time horizon
They're not the right product when:
- You might need the money at short notice (the early-withdrawal penalty defeats the higher rate)
- The tenure is shorter than 6 months (the rate premium over a savings account is too small to compensate for lost liquidity)
- You're saving for long-term retirement (tax-advantaged accounts like PPF/NPS in India or 401k/Roth IRA in the US produce better after-tax outcomes for retirement-horizon money)
- You want inflation-beating real returns (FD/CD rates rarely beat inflation by more than 1-2 percentage points; equity index funds historically have)
The FD/CD is a tool for known future expenses and conservative-tilted savings — useful when capital preservation matters more than capital growth, and the time horizon is short enough to make a fixed rate predictable. See what is compound interest for the underlying mechanic that makes longer tenures earn proportionally more.
Sources
- Reserve Bank of India, Master Direction on Interest Rates on Deposits — rbi.org.in
- Deposit Insurance and Credit Guarantee Corporation (DICGC) — dicgc.org.in
- Federal Deposit Insurance Corporation (FDIC), Weekly National Rates and Rate Caps — fdic.gov/resources/bankers/national-rates
- Federal Deposit Insurance Corporation, Deposit Insurance — Your Insured Deposits — fdic.gov/resources/deposit-insurance
- US Securities and Exchange Commission, Certificates of Deposit (CDs) — investor.gov/introduction-investing/investing-basics/investment-products/certificates-deposit-cds
- Income Tax Department of India, TDS on Interest from Fixed Deposits (Section 194A) — incometax.gov.in
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