Fixed Deposit

A Fixed Deposit or FD is an investment option where you need to deposit a specific amount for a pre-determined tenure. The banks offer a fixed interest rate on your deposit amount depending on the tenure and applicable FD interest rates. It is a guaranteed investment that provides assured returns to help fulfil short-term and long-term financial goals. By investing in an FD scheme, you might have the opportunity to generate better returns compared to a standard savings account. ...Read More

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How to Choose the Right Fixed Deposit?

In case you are confused about which FD scheme you should choose, here are some of the factors you must consider before investing in a fixed deposit scheme: -

Tenure

The FD interest rates vary with the tenure. The FD schemes with longer tenure tend to have higher rates. FD schemes with long tenure lock in your funds and compromises the option of liquidity. So, choose your tenure as per your long-term or short-term financial objectives.

Interest Rate

The interest rate offered is one of the most significant factors to consider. Higher the rate of interest, the higher the returns.

Premature Withdrawal

Before you choose a fixed deposit scheme, you must check the conditions for premature withdrawal. Most fixed deposit schemes levy a penalty for premature withdrawal

Other Advantages

Make sure to check for other advantages as well. Most FD schemes provide a facility to take a loan against the FD account, an auto-renewal feature, and an overdraft facility for higher liquidity of your funds.

What is Fixed Deposit?

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A fixed deposit is a type of investment that allows investors to earn interest on their funds for a fixed period of time. The interests accumulated along with the principal amount are given to the investor at the time of maturity.. It is also known as a term deposit. An FD scheme is one of the safest options as it offers guaranteed returns.

Investing in an FD means locking your money for a fixed tenure. You earn interest on the initial investment on a cumulative basis. You can easily open a fixed deposit in a bank if you already have a savings account. However, it is also possible to open an FD account without a savings account. In such a case, you will have to go through the entire KYC process.

Types of Fixed Deposits

There are a variety of FD options investors can choose from. Some of the most common types of fixed deposit accounts provided by banks in India are: -

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Standard FD

Under a standard fixed deposit account, the money is deposited for a fixed period. The tenure may range from 7 days to 10 years. The interest rates offered are higher than a regular savings account.

Tax-Saving FD

Tax-saving FD provides tax exemption on the initial investment amount of up to Rs. 1.5 lakh in a financial year under section 80C. The lock-in period for this type of FD is 5 years, within which no withdrawals are allowed. It only allows a one-time lump sum deposit.

Cumulative FD

With a cumulative FD, the interest is compounded on a quarterly or yearly basis and is paid after the completion of maturity. The primary advantage of this type of fixed deposit is that it offers sustainable growth of your savings.

Non-Cumulative FD

Under non-cumulative FD, the interest can be paid quarterly, monthly, half-yearly or yearly, as per the investor’s choice. It can be a great option for pensioners who are looking for a fixed source of income.

Flexi FD

Flexi fixed deposit is linked to the individual’s bank account. The money basically shuttles between the fixed deposit and the savings account.

Features & Benefits of a Fixed Deposit Account

Now that we have answered the question—‘What is fixed deposit?’, it is time we look at the features and benefits of FD to get a more clear idea. Here are some of the characteristics of fixed deposit account: -

Guaranteed Returns

It is possible to generate assured returns with a fixed deposit account. You can know your returns even before investing in an FD. This feature makes FD a safe and secure investment option.

Flexible Tenure

The fixed deposit scheme gives flexibility to the investors to choose their tenure. The period of deposit can be anywhere between 7 days to 10 years.

Interest Rates

The rate of interest offered on your deposit depends on the tenure you choose. The interest rate remains constant throughout the tenure.

Loan Against Fixed Deposit

You, as an investor, can avail of a loan against your FD account. This feature can turn out to be useful in case of urgent situations. By taking a loan against your FD account, you do not need to close your account prematurely.

Return on Investment

The higher the tenure of investment, the more returns one can generate. Moreover, the return on investment also depends on whether you choose to receive the interest regularly or reinvest it.

Eligibility Criteria for FD investment

Here are the eligibility criteria to invest in an FD scheme: -

For Individuals

  • Residents of India
  • People of Indian origin
  • Non-resident Indians
For Individuals

  • Residents of India
  • People of Indian origin
  • Non-resident Indians

Documents Required for opening an FD account

To open a fixed deposit account with a bank, you may need to submit the following documents: -

Identity Proof: PAN card, Voter ID, Aadhar Card, Ration card, Driving license, etc.

Address Proof: Bank statement along with the cheque, Utility bills, Identification or certificate issued by the post office.

Fixed Deposit Interest Rates

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FD interest rates refer to the rate of interest offered by banks on their fixed deposit schemes. A fixed deposit is a preferred financial instrument among investors as it offers a higher interest rate and assured returns. The rate of interest for an FD scheme is determined by the bank. Repo rate is one of the key factors that affect fixed deposit interest rates.

A fixed deposit is considered a safe investment that provides a consistent rate of interest and no risks related to the markets. To receive maximum return on your investments, make sure to compare the FD interest rates before opening a fixed deposit account

Cumulative Vs. Non-cumulative Fixed deposit

A cumulative fixed deposit is where the interest earned is accumulated till the completion of investment tenure. The interest earned in every cycle is added to the principal amount. This leads to compounding, which in turn leads to higher returns.

With non-cumulative FD, interest earned is paid to the investor on a regular basis. It can be paid monthly, quarterly, semi-annually, or yearly. It offers lower returns as the power of compounding is not completely realised.

How to Invest in a Fixed Deposit?

Before we proceed any further, let us see how you can invest in a fixed deposit scheme. You can follow these simple steps: -

Compare FD Interest Rates

The fixed deposit interest rates offered by different banks tend to vary. That is why it is important to pick the FD scheme that offers the highest rate of interest to generate maximum returns.

Pick Your Tenure

Tenure of a fixed deposit scheme can be anywhere between 7 days to 10 years. Select the tenure based on your convenience and requirement. If you are planning to invest for the long-term, you may invest for a minimum of 5 years. Such an FD scheme will help save taxes under section 80C of the IT Act.

Choose a Frequency of Pay-outs

After you decide on your FD investment tenure, you need to select the frequency of pay-outs. You have the flexibility to choose between monthly, quarterly, half-yearly, or yearly pay-out options.

Select Your Mode of Deposit

Finally, you need to decide the mode of deposit. Most banks and NBFCs allow their customers to make a deposit online through net banking. You can also visit the nearest branch to make your deposit.

Who should Invest in Fixed Deposits?

The fixed deposit scheme is not made for any particular segment of people. Anyone can invest in an FD scheme. Although, we can say that it is an ideal investment option for risk-averse investors who are looking for guaranteed returns. It offers a higher rate of interest compared to a regular savings account and can also help individuals fulfil their future financial goals.

FD Calculator

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FD is an investment scheme where you can know your returns even before investing. You can calculate the interest earned and the maturity amount within minutes using a financial tool known as an FD calculator.

Calculating the FD maturity amount manually can be complicated. With FD calculator you just need to share few inputs and it will help you find out the maturity amount.

You can use the FD calculator to find out your maturity amount.

Conclusion: Now since you understand how a fixed deposit works we would like to introduce a product that has both guaranteed*# returns and life cover.

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Frequently Asked Questions

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A fixed deposit is a type of investment that allows investors to earn interest on their funds for a fixed period of time. The tenure can be anywhere between 7 days and 10 years.

If you are looking to save taxes, tax-saving FD can be the best option for you. It offers tax exemptions under section 80C of the Income Tax Act.

A fixed deposit is considered one of the best investment options for individuals looking for stable, guaranteed returns with any market risks involved.

The minimum amount required to open an FD account depends on the financial institutions. With some banks, you can open an FD account with an investment of Rs. 1,000.

Yes, you can close and open an FD account at any time you like. However, if you wish to make premature withdrawals, a small penalty may be charged.

The maximum amount that can be deposited in an FD account is Rs. 1.5 lakh.

Yes, a fixed deposit scheme is completely risk-free and offers guaranteed returns.

If you want to double your money in 5 years, the compound annual growth rate should be around 15%. There is no guarantee that you will be able to double your money in 5 years by investing in a fixed deposit.

Yes, you can get the interest earned paid out to you on a monthly basis if you want.

No, you cannot make premature withdrawals or break a tax-saver FD before the completion of 5 years.

The minimum period to invest in a fixed deposit scheme is 7 days

Yes, a fixed deposit scheme is a completely risk-free and safe investment option that offers guaranteed returns.

The investment made under an FD scheme is exempt from tax as per section 80C of the IT Act.

Investing in an FD means locking your money for a fixed tenure. You earn interest on the initial investment on a cumulative basis. The interests earned along with the principal amount are paid out at the time of maturity.

Banks may charge a small penalty if you choose to break your FD account before the maturity period is over.

After the maturity period is over, you can either choose to renew your FD or terminate it.

ARN:PCP/FD/060223

*#Guaranteed benefits are applicable if all due premiums are paid.


1www.financialexpress.com/money/fixed-deposit-5-things-to-know-before-you-open-an-fd-account/2474902/

www.economictimes.indiatimes.com/wealth/invest/fd-investors-should-use-this-formula-to-get-maximum-benefit-from-rising-interest-rates/articleshow/91934590.cms

www.indianexpress.com/article/explained/should-you-invest-in-fixed-deposits-with-banks-6609662/

www.financialexpress.com/money/bank-fixed-deposit-vs-post-office-time-deposit-how-to-choose-best-fd/1783936/

www.axisbank.com/retail/deposits/fixed-deposits/how-to-apply

www.financialexpress.com/money/what-is-cumulative-fd-should-savers-go-for-it-sbi-icici-hdfc-bank-kotak-cumulative-fd-details/1343825/

https://www.financialexpress.com/money/this-bank-offers-upto-7-1-interest-rate-on-regular-fd-check-details/2535717/

www.axisbank.com/retail/deposits/fixed-deposits/documents

www.axisbank.com/retail/deposits/fixed-deposits/eligibility

www.etmoney.com/fd/beginners-guide-to-fixed-deposits

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