Everything You Need to Know About Fixed Deposit (FD)

What is a Fixed Deposit (FD)?

A fixed deposit (FD) is an investment product offered by public and private banks as well as non-bank financial companies (NBFCs). You can put a lump sum of money into an FD in exchange for interest and the principal amount at maturity. The period during which you invest in your maturity period, during which you are unable to withdraw before it expires. You must pay a penalty and earn a lesser interest rate if you withdraw before the maturity date.

The interest rate on a fixed deposit varies from one bank to the next. Furthermore, the interest rate on an FD is higher than that on a savings bank account. The interest on an FD is paid to an investor either at regular intervals or the maturity of the FD, depending on the investor’s preference. You will receive the principal amount as well as the compound interest on your investment when it matures. The interest on an FD is paid to an investor either at regular intervals or the maturity of the FD, depending on the investor’s preference. It is not necessary to have a separate bank account to invest in a fixed deposit account.

How does a Fixed Deposit Account work?

When you invest in a fixed deposit, your money is locked in for the duration of the deposit. On such a principal amount, you will undoubtedly receive interest, which will be credited to your FD account according to the payout duration. You have the option of receiving payments monthly, quarterly, half-yearly, or yearly. As a result, the interest rate is applied to the investment amount and compounded monthly, quarterly, half-yearly, or annually, depending on the circumstances.

You can either withdraw the matured money or reinvest it in the same or a different type of FD when it matures. Alternatively, you can set up an auto-reinvest maturity instruction with your bank or NBFC, and the maturity amount will be automatically reinvested at maturity. Before the maturity date, you can easily adjust the maturity instruction.

What are the Different Types of FDs?

Normal Fixed Deposit

Traditional fixed deposits are offered by public and private banks, as well as NBFCs. The interest rate is fixed, and the lock-in period ranges from seven days to ten years. The interest rate typically runs from 4% to 7.50% and is higher than that of a savings bank account. To open an FD with a certain bank, you do not need a bank account. You must, however, adhere to the KYC criteria.

Tax-Saving Fixed Deposit

A tax-saving FD, as the name suggests, offers a tax benefit of up to Rs 1.5 lakhs under Section 80C of the Income Tax Act, 1961. You cannot, however, remove before the 5-year lock-in period. Before investing in a 5-year tax-deferred savings account, you should consider your emergency needs.

Senior Citizen Fixed Deposit

Individuals who are over the age of 60 are eligible for the senior citizen fixed deposit. A senior citizen FD has a greater interest rate than a conventional FD. It offers a higher interest rate, ranging from 0.25% to 0.65% over the standard rate. As a result, it benefits senior citizens by providing them with a better investing alternative.

Flexible Fixed Deposit

A flexible fixed deposit, also known as a sweep-in FD, is a type of investment in which you can put down any amount of money for any length of time. You can also cash out before the end of the term. It combines the advantages of a traditional FD and a savings account. You must invest a lump sum amount for a period that meets your requirements. Your fixed deposit account is linked to your savings account, and money moves back and forth between them. The quantity is determined by your instructions.

Company or Corporate Fixed Deposit

Corporate Fixed Deposits or Company Fixed Deposits are offered by Non-Banking Financial Institutions (NBFIs). It serves as a savings vehicle for investors. The interest rate on a firm or corporate fixed deposit is usually higher than on regular fixed deposits. Before investing, you should carefully check the creditworthiness of the NBFC giving the FD. Credit agencies such as CRISIL, ICRA, and CARE can offer you a credit score.

What are the Features of a Fixed Deposit?

• In an FD account, the sum can only be deposited once. You will need to open a new FD scheme or account for any further investments.
• The duration varies from seven days to ten years. You can choose between days, months, or years for maturity.
• The minimum investment amount varies from bank to bank and NBFC to NBFC. Typically, the sum fluctuates between Rs 1,000 and Rs 5,000 depending on the type of FD. The maximum amount of investment, however, is unrestricted.
• The interest rate on a loan is normally higher than the rate on a savings account.
• The interest rate is set after the investment and does not alter. The fixed interest rate on any sort of FD is unaffected by market changes.
• You have the option of investing in a fixed payout or paying out the interest earned at maturity. The interest will be credited to your savings account on a monthly, quarterly, half-yearly, or yearly basis, depending on the payout option you choose.
• Because a fixed deposit is designed to be locked in for a set length of time, any early withdrawal will result in a penalty and a loss of interest. The penalty varies depending on the bank/NBFC.
• In the event of an emergency, you can take out a loan against your fixed deposit. Such a loan will have a lower interest rate than other loans. This is because a loan against a fixed deposit is a secured loan with the FD as security.
• You can now apply for a credit card using your FD as collateral. Furthermore, banks offer a safe deposit box with an FD as the primary requirement.
• You can add a nominee to your FD to ensure that the maturity funds are distributed to your nominee in the event of your death.