Benefits
Fixed Deposits (FDs) are a popular investment option in India, offering guaranteed returns and
safety. FDs are easy to open and can be customised to meet your needs. Whether saving for a
short-term goal or planning for the long haul, Fixed Deposits offer flexibility in terms of tenure,
ranging from a few days to several years.
Let’s explore the intricacies of FDs while understanding their foundational aspects and the many
advantages they bring to an investor’s portfolio.
Fixed Deposit – Meaning
As the name suggests, a Fixed Deposit, or FD, refers to an account where a sum of money is
deposited for a predetermined period at a fixed interest rate. It’s a traditional form of savings that
has been a preferred choice for many investors, primarily due to its safety and predictability.
Once you fill out the application form and hand over your investment amount to the financial
institution, the institution starts calculating the interest. The interest on a Fixed Deposit is
generally higher than savings accounts.
Types of Fixed Deposits in India
There are two broad types of FDs – cumulative and non-cumulative.
1.If you invest in a cumulative FD, your investment amount will remain locked until
maturity. The financial institution will transfer your capital and accumulated interest to
your savings or current account on the maturity date.
2.On the other hand, a non-cumulative FD enables you to get the interest periodically. So,
you can specify your preferred interest payout option, such as monthly, quarterly, half-
yearly, or annually, at the time of account opening.
Key Features of Fixed Deposits
A Fixed Deposit is a feature-rich investment instrument that caters to a broad spectrum of
investors, from cautious savers to seasoned investors.
The following are the top features of Fixed Deposits that make them a popular investment
choice in India:
1.Such deposit accounts have a specific tenure, but you can withdraw your capital and
accumulated interest early, subject to a penalty.
2.The interest rate of a Fixed Deposit is almost always higher than that of an ordinary
savings account.
3.The Fixed Deposit duration generally ranges between seven (7) days and ten (10) years.
4.You can renew a Fixed Deposit conveniently after maturity. Alternatively, instruct the
financial institution to automatically transfer the principal (and interest) on maturity.
5.The minimum amount for opening a Fixed Deposit is usually Rs 10,000.
6.You can open a Fixed Deposit by visiting your nearest bank or through the available
online channels.
7.Senior citizens can get better interest rates on Fixed Deposits because of special
provisions tailored to their post-retirement phase.
Understanding the Benefits of Fixed Deposits
Below are some significant benefits of opening Fixed Deposit accounts in India:
High-Interest Rate
As previously mentioned, the interest rate of a Fixed Deposit is typically higher than an ordinary
savings account. However, the effective interest rate depends on the tenure and amount of the
FD.
For instance, if you deposit less than Rs 2 crore for seven to fourteen days, the applicable
interest rate will be 3% for ordinary investors and 3.50% for senior citizens.
However, if you invest the same amount for more than three years but less than five years, the
applicable interest rate can go up to 7% for ordinary investors and 7.50% for senior citizens.
Note that banks usually do not pay any interest if an investor withdraws the entire FD amount
seven days before the completion of the investment date. Moreover, if you close the FD before
the maturity date mentioned in the FD certificate, you may have to pay a penalty ranging from
0.50% to 1.50% of the interest rate.
Loan Facility
Note that the repayment term of a loan against FD is equivalent to the maturity term of the FD
instrument. For instance, if you have a 10-year FD and apply for a loan against that FD in the
sixth year, you will get four years to repay the loan. This makes it easier for investors to manage
their finances without breaking their Fixed Deposits prematurely.
Wide Options
Gone are the days when Fixed Deposits were perceived as monotonous financial tools with
limited variations. Fast forward to 2023, and you are presented with many Fixed Deposit options
tailored to diverse investor needs.
The most common one is the Regular Fixed Deposit. It’s known for being easy to use, safe, and
offering steady returns.
The second type is the Golden Years FD, which provides senior citizens an additional interest
rate of 0.10%. This is in addition to the extra 0.50% interest rate they get on every Fixed
Deposit.
Besides the two types of aforementioned Fixed Deposits, you can explore options like Money
Multiplier FD, Tax Saver FD, Flexi Fixed Deposit, and Overdraft Against Fixed Deposit.
Easy Eligibility
Almost anyone above 18 years of age can open an FD account. So, any resident Indian, Hindu
Undivided Family (HUF), Sole Proprietorship Firm, Partnership Firm, Limited Company, Trust
Account, or Non-Resident Indian can invest in a Fixed Deposit. Moreover, minors can also open
an FD account if their guardian is a co-holder.
Tax Savings
A Fixed Deposit can also be used as a tax-saving instrument. You can claim a tax deduction of
up to Rs. 1.5 lakh for investing in a tax-saving FD. However, the interest earned on such an
investment is fully taxable.
Convenient Account Opening Process
Opening a Fixed Deposit account has never been easier. You can opt for the traditional route,
visiting a bank branch and physically submitting your application.
However, for a more seamless experience, you can also go digital. To open your FD account
online, you only need to visit the bank’s website or download their mobile app and follow the
step-by-step instructions.
Conclusion
Fixed Deposits (FDs) are a cornerstone of sound financial planning, offering a secure and
straightforward way to grow your savings. Understanding the meaning of Fixed Deposits is
just the first step. With various tenures, competitive interest rates, and the magic of
compounding, FDs cater to both short-term and long-term financial goals. Whether you’re
looking to create an emergency fund or save for a future milestone, FDs provide a stable
platform for achieving your objectives. By delving into the world of FDs, you’ve taken the first
step towards securing your financial future and ensuring that your money works efficiently. So,
consider the many benefits of FDs as you embark on your journey to financial success.
