FD Rates in May 2026: SBI, PNB, other major lenders pay these returns in 1, 3, 5 years now—Learn with examples

Many investors prefer fixed income instruments for creating wealth over riskier asset classes like equities and mutual funds. In May 2026, large commercial banks offer a range of FD interest rates to retail depositors, starting at 6.1 per cent and stretching to as high as 7.1 per cent. The rates often vary for senior citizens compared to other depositors, typically higher by 50 bps (0.5 percentage point) in most cases.

State Bank of India (SBI) -- the country's largest lender by assets -- offers an interest rate of 7.05 per cent to senior citizens and 6.05 per cent to other depositors on callable FDs worth up to Rs 3 crore, according to its website. This rate includes an additional return of 50 bps under the PSU bank's 'We-care' deposit scheme.

SBI, Bank of Baroda, Punjab National Bank, HDFC Bank and ICICI Bank pay returns to the tune of 6.75-6.95 per cent per annum to senior citizens and 6.25-6.45 per cent per annum to other depositors on three-year FDs, as of May 1, 2026, according to their portals.

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Bank FD Rates | What SBI, Bank of Baroda, other lenders pay in 1-year, 3-year, 5-year deposits

Senior citizens

General public

Out of these, PSU bank FD rates stand in the range of 6.6-7.05 per cent for senior citizens and 6.05-6.30 per cent for other depositors in five-year FDs.

In the one-year tenor, PSU lenders pay returns of 6.60-6.75 per cent to senior citizens and 6.10-6.25 per cent to other depositors.

What do these rates mean? Some examples

Now, to put things into perspective, let's take a few examples to compare what these rates mean.

First things first, do you know how fixed deposit returns are compounded?

FDs at commercial banks in India are compounded quarterly. But what does that really mean?

Quarterly compounding means that the sum of principal and interest at the end of each calendar quarter is used to determine the interest rate. In other words, more frequent interest - precisely four compoundings a year instead of one -- translates to money added to your principal four cozy a year instead of just once. Essentially, each quarter's earnings start earning too, instead of just once at the end of each year.

Picture this, let's say you may Rs 1,000 deposit each in fixed income instruments, one with yearly compounding and the other with quarterly compounding.

The one working on yearly compounding will add Rs 70 at the end of the year for a total of Rs 1,070 (principal plus interest). On the other hand, the other scheme will add 1.75 per cent of interest into the sum each quarter, taking the Rs 1,000 initial sum to Rs 1,017.5 at the end of the first quarter, Rs 1,035.6 at the end of the second, Rs 1,054 at the end of the third, and Rs 1,072.4 at the end of the fourth quarter.

This increases the end-tenor sum as each quarter's interest also starts bearing interest.

This brings the effective yield of a 7 per cent quarterly compounding return to 7.19 per cent.

Now, let's understand some of the returns listed above with examples. We'll use Rs 1,00,000 as principal in each case.

1-year FD rate example (quarterly compounding)

At a 6.25 per cent return in a one-year fixed deposit, a sum of Rs 1 lakh will yield interest of Rs 6,398, taking the maturity amount (principal plus interest) to Rs 1,06,398, calculations show.

3-year FD return

Similarly, a 6.8 per cent interest in a three-year FD will earn interest of Rs 22,420, taking the maturity amount to Rs 1,22,420.

5-year FD interest

At 6.5 per cent, a five-year deposit will earn interest of Rs 38,042.

Here are answers to some frequently asked questions (FAQs) on the subject:

Are FD returns taxable?

Yes.

How are FDs taxed?

FD interest is fully taxable at the depositor's applicable slab rate. TDS applies at 10 per cent if above Rs 1 lakh for senior citizens and over Rs 50,000 for other depositors.

How is FD interest reported in ITR?

It goes under taxable in the 'income from other sources' category.

What are callable and non-callable FDs?

Callable FDs allow premature withdrawals, usually with penalty, whereas non-callable FDs don't allow premature withdrawals. Non-callable FDs generally pay slightly higher rates compared to callable ones.

What is the difference between cumulative and non-cumulative FDs?

Cumulative FDs reinvest interest to compound at maturity, whereas non-cumulative ones pay it out periodically.

Do senior citizens always get higher rates?

Generally, yes.

How much extra FD interest do senior depositors get?

Typically, they get about 50 bps extra returns across tenures.

Is FD money safe in commercial banks?

It is insured up to Rs 5 lakh per depositor, including principal and interest, by DICGC.

What is DICGC? What does it do?

A unit of the RBI, DICGC provides insurance on FDs and savings, protecting the interests of depositors against bank failure.

What is effective yield in FDs?

That is the actual return post compounding. An effective yield can often stand slightly above the stated rate.

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)