Fixed Deposit Meaning
Fixed deposits are one of the most common ways to save money in India. They are a safe investment with strong returns and are simple to open.
What is a Fixed Deposit?
In a Fixed Deposit, you deposit a lump sum into your bank for a set period of time at an agreed-upon interest rate. At the conclusion of the term, you will receive the amount you invested plus compound interest.
Term deposits are another name for FDs.
A fixed deposit, often known as an FD, is an investment vehicle offered by banks and non-banking financial institutions (NBFC) to their customers to help them save money. With an FD account, you can invest a large sum of money at a predefined rate of interest for a set period of time. At the conclusion of the term, you receive the lump payment plus interest, which is a terrific money-saving strategy. For a fixed deposit account, banks provide various rates of interest.
Features of a Fixed Deposit
- Assured Returns
A fixed deposit’s returns are guaranteed. You will receive the same return as agreed upon when you opened the FD. With market-led investments, which provide returns depending on changes in market interest rates, this is not the case. Even if interest rates fall, you will still receive the agreed-upon interest rate. This makes fixed deposits more secure than other types of investments.
- Interest Rate
The interest rate on fixed deposits changes according to the term selected. However, the interest rate is fixed.
- Return on Investment (ROI)
The interest rate on your fixed deposit is determined by the maturity length or tenure of the FD. You earn more interest if you have a longer tenure. Furthermore, the returns on your investment are determined by whether you want to receive the interest on a regular basis or reinvest the money, which is known as a cumulative FD. With this FD, you enjoy the benefit of compounding.
- Flexible Tenures
Most Banks provide Fixed Deposits with terms ranging from 7 days to 10 years.
- Loan against FD
While FDs are fixed for a set period of time, you can borrow against them when you need money. The advantage is that your FD continues to collect interest, and you don’t have to withdraw your FD prematurely and pay a penalty.
Types of Fixed Deposits
Standard Term Deposits
Standard fixed deposits are investment programmes in which you invest an amount for a set length of time at a fixed interest rate. The investment length or tenure might range from 7 days to 10 years. The interest rate offered is determined by the duration of the investment as well as the financial institution providing this product.
Senior Citizen Fixed Deposits
Individuals over the age of 60 receive a higher interest rate on FDs from banks and NBFCs than other investors, typically by 25-50 basis points (0.25-0.50%). They also provide an additional tax benefit. Senior citizens’ interest If the amount invested in FDs does not exceed $50,000 per year, no tax is deducted at the source. Other investment options do not offer this benefit to seniors.
The TDS deduction limit for those who are not senior citizens is 40,000 per year. Investing in FDs as a senior citizen will minimise your overall tax burden and hence boost your earnings.
Tax-Saving Fixed Deposit
Certain tax-saving FDs qualify for tax deductions. A tax-saving FD has a 5-year maturity period and the principal amount is tax-deductible under Section 80C of the Indian Income Tax Act up to Rs. 1,50,000 per annum.
A recurring deposit is a sort of fixed deposit in which you can invest a preset sum monthly or quarterly for a set period of time. The interest rate is fixed. At the end of the maturity period, you will receive your principal plus interest computed proportionally. For example, you could deposit $1,000 every month for five years. The interest on the first deposit will be paid for five years, while the interest on the last deposit will be paid for one month.
Flexi Fixed Deposit
Your savings account is connected to a flexible fixed deposit. You can direct your bank to automatically transfer any amount above a predetermined balance to a fixed deposit using this instrument’s auto sweep-in feature. For example, if you want to keep a monthly balance of 30,000, any excess will be moved to an FD. If your balance falls below 20,000, the bank will liquidate a portion of your FD to keep your balance stable. It provides you with the benefits of liquidity and investment.
Flexi-deposit interest rates are greater than savings account interest rates but lower than regular fixed deposit rates.
Corporate Fixed Deposits
Some businesses or corporate entities also provide fixed deposits. While corporate FDs offer greater interest rates than banks and NBFCs, the risk associated with them is higher. While bank and NBFC deposits are backed and insured by the DICGC, corporate fixed deposits do not have this protection. There is no certainty that your money in corporate deposits will be returned if a company goes bankrupt.
Fixed Deposit for Non-Resident Indians
Non-resident Indian citizens can invest in non-resident external (NRE) or non-resident ordinary (NRO) fixed deposits. NRE FDs are appropriate for citizens earning in a foreign currency. Despite currency swings, the major advantage of NRE FDs is that the entire amount, principal and interest, is tax-free. NRO FDs can be placed in either Indian or foreign currencies and are taxable at 30% per year.
In India, banks deduct tax at the source on FDs if the interest paid to a customer at any bank exceeds 10,000 in a fiscal year. This is true for both interest payable and interest reinvested per customer. This is known as Tax Deducted at Source, and it is currently set at 10% of the interest.
Best Fixed Deposit Rates Available
|Name||Bank/ NBFC||Regular FD Rate||Senior Citizen FD rate|
|Bajaj Finserve||NBFC||6.1 – 6.6%||6.35 – 6.85%|
|State Bank Of India||Public Sector Bank||2.9 – 5.4%||3.4 – 6.2%|
|Punjab National Bank||Public Sector Bank||3.0 – 5.25%||3.5 – 5.75%|
|Mahindra Finance||NBFC||5.7 – 6.45%||5.95 – 6.7%|
|ICICI Bank||Private Bank||2.50 – 5.5%||3.0 – 6.3%|
|HDFC Bank||Private Bank||2.5 – 5.5%||3.0 – 6.25%|
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