Many investors continue to prefer fixed income instruments over market-linked products such as equities and mutual funds, especially during periods of volatility and economic uncertainty. Among these, fixed deposits (FDs) remain one of the most popular low-risk investment options for individuals seeking stable returns, capital protection, and predictable monthly income.

In 2026, interest in fixed deposits has increased again as banks and financial institutions offer FD rates ranging between 5.75% and 7.75%, while some small finance banks are providing rates of up to 8.10% for select tenures. Senior citizens continue to receive additional interest benefits ranging from 0.25% to 0.75%, making FDs particularly attractive for retirees and conservative investors.

For investors planning to deposit Rs 1 lakh in a fixed deposit, monthly earnings depend mainly on three factors — the total deposit amount, the interest rate offered by the bank, and the payout option selected.

If investors choose the monthly payout option, the interest earned is credited every month instead of being compounded till maturity. This option is commonly preferred by retirees, salaried individuals seeking supplementary income, and risk-averse savers looking for predictable cash flow.

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Investing Rs 1 lakh in FD

The monthly income from an FD is calculated using the formula:

Monthly Income = (FD Amount × Interest Rate) ÷ 12

Based on current FD rates offered by major private sector banks, a Rs 1 lakh fixed deposit can generate monthly income ranging from around Rs 479 to Rs 646 before tax deductions.

For regular customers:

• Axis Bank at 5.75% can generate around Rs 479 per month
• ICICI Bank and HDFC Bank at 6.25% may generate around Rs 521 monthly
• Kotak Mahindra Bank at 6.50% can offer nearly Rs 542 monthly
• Yes Bank at 6.65% may provide approximately Rs 554 every month

For senior citizens:

• Axis Bank at 6.25% may generate around Rs 521 monthly
• ICICI Bank and HDFC Bank at 6.75% can offer approximately Rs 563 monthly
• Kotak Mahindra Bank at 7% may generate nearly Rs 583 monthly
• Yes Bank at 7.75% can provide around Rs 646 every month

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Small finance banks offering the highest FD rates

Several small finance banks are currently offering some of the highest FD rates in the market. According to available FD data for 2026:

• Suryoday Small Finance Bank and Utkarsh Small Finance Bank offer rates up to 8.10%
• Shivalik Small Finance Bank offers up to 7.80%
• Jana Small Finance Bank offers 7.77%
• ESAF Small Finance Bank offers 7.75%

Among private banks, IDFC FIRST Bank, Yes Bank, Bandhan Bank, RBL Bank, Tamilnad Mercantile Bank, and IndusInd Bank are also offering relatively higher FD slab rates compared to larger peers. Public sector banks such as SBI, Bank of Baroda, Canara Bank, Punjab National Bank, and Union Bank of India continue to offer FD rates largely between 6% and 6.75%.

Financial planners say fixed deposits remain attractive because they provide assured returns, flexible tenure options ranging from 7 days to 10 years, and lower risk compared to market-linked investments. However, experts advise investors to compare FD rates, premature withdrawal rules, payout options, and post-tax returns before investing.

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Published on: May 12, 2026 2:36 PM IST