🏦 Fixed Deposit
📈 Liquid Fund
Important Assumptions & Disclaimer
Fixed Deposit (FD): Returns are calculated using quarterly compounding, which is the standard method used by Indian banks. The interest rate entered is treated as a guaranteed rate at the time of deposit. Premature withdrawal may result in a 0.5%–1% rate reduction depending on bank policy.
Liquid Mutual Fund: The return shown is an estimated yield based on current money-market conditions. Liquid funds do not guarantee a fixed return. The NAV (Net Asset Value) changes daily depending on treasury bill yields, certificates of deposit, and short-term debt instruments. Actual returns may be higher or lower.
Taxation: This tool intentionally does not calculate taxes because tax laws and rebates frequently change. In India, both FD interest and liquid fund gains are usually taxed as per the investor’s income slab under “Income from Other Sources” or capital gains rules. Always confirm taxation with a tax advisor or CA.
Liquidity Rules: Liquid funds usually allow redemption in T+1 working day and instant redemption up to ₹50,000 (AMC dependent). A small exit load may apply for withdrawals within the first 6 days. FD withdrawals before maturity may incur a penalty.
Official Reference:
AMFI Mutual Fund Basics
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The Easemoney decision tool compares the same money in two different environments: bank deposit vs short-term lending market.
Instead of asking “which gives higher return?”, the tool answers a more practical question: what happens if your plan changes?
Put the actual amount you are planning to park. Example: bonus ₹2,00,000, property advance ₹5,00,000, emergency fund ₹50,000.
Choose how long you *think* you won’t need the money — 2 months, 6 months or 12 months. Be honest here. This is the most important input.
Use the interest rate your bank is offering (for example 7%). You can check from your bank app or branch.
This is an estimate (for example 7.2%). It is not guaranteed — it reflects current short-term interest environment.
• final value in both options
• impact of early withdrawal
• which one suits your situation
Many people look only at the final number. But the important part is the verdict and insight box.
If the tool prefers Liquid Fund → your timing is uncertain.
If the tool prefers FD → your timeline is stable.
If you keep ₹2 lakh for 12 months and never touch it → FD works well.
If you may need the money in month 5 → liquid fund often becomes the better practical choice even if interest looks similar.
People usually lose return not because interest rate was low — they lose because they selected the wrong product for their timing.
If you ask most people, they will say: FD is safe, mutual fund is risky. But a liquid fund does not behave like a stock market investment.
Think of it like this — the real question is not safety. The real question is: Will you need the money soon, or will you not touch it?
A Fixed Deposit (FD) is a bank promise. You give a lump sum to the bank and the bank agrees to return it after a chosen time with fixed interest. You can see full FD working here.
A Liquid Fund works differently. Instead of giving money to one bank, your money gets temporarily lent to multiple banks, government treasury bills and large companies — but only for very short periods (sometimes even a few days, maximum about 91 days).
Liquid fund = money you may need but still don’t want idle.
If you are saving for a phone you will buy next year → FD fits.
If you are waiting for builder payment date next month → liquid fund fits.
When you put money in a liquid fund, you are not buying shares. You are indirectly lending money for a very short time. Because loans are short, risk and price movement stay low. Funds operate under: SEBI investor framework.
FD works on commitment. The bank can give a fixed rate because you are agreeing not to withdraw early. Deposits up to ₹5 lakh per bank come under deposit protection: RBI DICGC scheme.
Large banks currently around 6.25%–7.2% yearly.
Small Finance Banks may offer near 8%+, but only if money is locked for longer tenure.
Your return is decided on day one and will not change even if market rates move later.
Typically moves around 6.5%–7.5% because funds invest in treasury bills, bank CDs and short-term money market papers (usually below 91 days maturity).
Return slowly adjusts with RBI short-term interest cycle.
Your FD becomes locked to old rate.
If rates rise later, new deposits may earn more than yours.
If rates fall later, your FD becomes beneficial.
Because investments mature quickly, fund keeps reinvesting in new instruments.
So yield gradually rises when rates rise and slowly falls when rates fall.
Needing ₹20,000 from a ₹2,00,000 FD forces you to close the full deposit.
Bank usually recalculates interest and reduces effective return by roughly 0.5%–1%.
Frequent breaking quietly lowers annual earning.
You withdraw only what you need.
Remaining money stays invested and continues earning.
This is why many investors use liquid funds as emergency reserve instead of savings account.
If you open FD while waiting for property registration, admission fee, or car purchase, you may need to break it repeatedly.
In practice, the final return becomes much lower than the quoted FD rate.
Designed exactly for uncertain timelines — even 10 days or 2 months.
No need to predict exact date beforehand.
Your entire deposit stays with one bank only.
Bank promises fixed return and holds funds till maturity.
Money spreads across multiple borrowers — treasury bills, top banks and large institutions — each for very short duration.
Short maturity reduces price movement risk.
Immediate only after closing entire deposit.
Partial withdrawal usually not possible.
Normally credited next working day (T+1).
Many funds allow instant redemption up to about ₹50,000.
Best when you already know the timeline — 1 year, 2 years, retirement saving, fixed goal.
Best when the timeline is uncertain — emergency buffer, business cash, bonus money temporarily parked.
FD does not give higher return because it is better — it gives higher return because you promise not to touch the money. Liquid fund does not give lower return — it gives flexibility because you may need the money anytime.
So the real decision is not “which earns more”. The real decision is: Are you locking the money, or are you waiting to use it?
Earlier, debt mutual funds had a clear tax advantage. But for investments made after April 2023, that advantage is removed.
Today in 2026, both FD interest and liquid fund gains are added to your income and taxed according to your income slab (5%, 20%, 30% etc.).
If you keep money 3 years in liquid fund and withdraw once, tax happens only once.
Banks also deduct TDS on FD interest once yearly interest crosses threshold limits. This is why sometimes your FD maturity looks lower than expected.
Liquid funds normally do not deduct TDS for resident investors because the gain appears only at redemption.
You can read official filing guidance here: Income Tax Return applicability (official portal)
Because FD is taxed every year, a part of your interest leaves the investment regularly. So compounding happens on a smaller amount.
Liquid fund delays taxation until withdrawal. So the full amount keeps growing without interruption.
But FD pays tax yearly → compounding slows.
Liquid fund pays tax later → compounding continues longer.
In 2026, FD is simpler tax-wise, but liquid fund is timing-friendly. The benefit is not lower tax — it is delayed tax.
Suppose you have ₹2 lakh today. You are not investing in shares — you just want it safe and earning.
After 12 months → about ₹2,14,000
But if you break in month 11, bank reduces rate and you may lose ₹1,000–₹1,500 of interest.
After 12 months → about ₹2,14,300–₹2,14,600
If you withdraw in month 11, no penalty and only small NAV change.
• You want fixed maturity amount
• You are saving for a known date (wedding, fees, purchase)
• You prefer bank certainty over flexibility
• You are building an emergency fund
• You are waiting for a payment date
• Your income or expenses are unpredictable
Instead of choosing only one, many people divide money.
₹1.5 lakh in FD → for fixed earning
₹50,000 in liquid fund → instant access reserve
This way, emergency does not force you to break your FD.
Fixed Deposit
Liquid Fund
FD
Liquid Fund
FD wins when your time is fixed.
Liquid fund wins when your timing is uncertain.