Fixed Deposit Decoded: Will 10-year FD produce same result as 2 five-year FDs?

Have you wondered if returns from 10-year and 5-year fixed deposits are comparable? The two maturities -- sometimes available at similar rates -- vary in their tax treatment. Add compounding to the equation, and for a rather conservative investor, both offer bankable, predictable returns over the given period of time. Now, in a lower benchmark interest rate scenario, how much can you expect your money to grow in this long-term, fixed-income debt instrument? In this article, let’s compare estimated returns at some of the largest and most popular lenders in the country, and see what’s in it for depositors.

Currently, SBI, Bank of Baroda, and HDFC Bank offer FD interest rates in the range of 6.65-7.05 per cent to senior citizens and 6.0-6.15 per cent to other depositors in the 10-year maturity option, according to their websites.

As of August 7, 2025, while both PSUs offer the same interest rates on 5-year maturity, HDFC Bank offers 6.4 per cent to the general public and 6.9 per cent to senior citizens.

In order to keep our estimates as realistic as possible, let’s use these interest rates in this example.

At these rates, a Rs 1.5 lakh investment is set to grow to an estimated Rs 2.72-2.83 lakh for the general public and Rs 2.97-3.02 lakh for senior citizens, calculations show.

Remember: FDs are compounded quarterly -- which essentially means that your interest is calculated four time a year.

Will the outcome be the same in two back-to-back 5-year FDs?

FDs yield ‘fixed’, predetermined interest. What that means is that the rate at the time of opening an FD account will apply for its entire maturity period -- also known as ‘lock-in period’ or just ‘lock-in’.

Hence, at the end of the first five years, the benchmark interest rates may change -- either upwards or downwards – and the new deposit may yield the new rate accordingly.

However, for the sake of understanding, assuming that the same rate applies to 5- and 10-year maturities and then remains the same at the end of the first 5 years, the overall outcome will be the same in 10 years. On the other hand, if different interest rates are offered in 5- and 10-year maturities, then the outcome is set to vary even if the same rates continue at the end of the first 5 years.

Take a closer look at these calculations to understand this better:

*Assuming that interest rates remain the same

Practically, interest rates keep changing from time to time, and FDs offer the prevailing rates applicable at the time of setup. 

Now, taxes

While the deposit in a 5-year maturity offers tax deduction benefits up to Rs 1.5 lakh in the old regime (Section 80C) in a given financial year, a 10-year FD offers no such deduction.

The interest earned in both maturities is fully taxable as per the applicable income tax slab. In other words, there is no special tax exemption or deduction solely for holding a 10-year FD.

From FY26, a TDS exemption limit of Rs 50,000 is applicable for the general public and Rs 1 lakh for senior citizens on FD interest income annually across tenures.