Fixed Deposits (FDs) are a reliable and widely preferred option for saving and investing money. By depositing a specific amount for a fixed period, you can earn interest, with both the principal and interest returned to you at maturity. FDs offer a steady income through a fixed interest rate, making them a useful tool for reducing overall risk in your investment portfolio.
With various types of FDs available, such as cumulative and non-cumulative, choosing the right one is crucial to align with your financial goals and secure a stable return on your investment.
Types of Fixed Deposits
There are two main types of FDs based on the interest payout modes, referred to as cumulative and non-cumulative types. You can choose a mode that best aligns with your financial goals.
Cumulative Fixed Deposits
- The interest is not paid regularly but is reinvested back into the principal amount
- You get your interest earnings along with the invested amount at the end of the FD tenure
- Suitable for those who want benefit from the power of compounding interest
- This option is also known as the ‘payout at maturity’ type
Non-cumulative Fixed Deposits
- A suitable option for those who need a steady income from their investment
- Interest is paid regularly as quarterly, half-yearly, monthly, or yearly payouts
- The power of compounding does not apply to this type of FD
Other Common Types of Fixed Deposits
Choosing an FD option depends on your financial goals. Apart from cumulative and non-cumulative options, here are some other types of deposits that you can consider investing in:
Standard Fixed Deposits
- Lump sum deposited for a fixed period (7 days to 10 years)
- Offers higher interest rates than a savings account
Tax-saving Fixed Deposits
- Allows you to save up to ₹1.5 Lakhs in taxes per financial year under Section 80 C of the Income Tax Act, 1961
- Has a mandatory 5-year lock-in period
- Interest earned is fully taxable
Senior Citizen Fixed Deposits
- Special FDs for senior citizens above the age of 60 years
- Issuers offer higher interest rates when compared with FD rates for non-senior citizens
Flexi Fixed Deposits
- Linked to your savings account and automatically transfers excess funds into an FD
- Offers the flexibility to withdraw funds like a savings account while helping you earn higher returns offered by an FD
Corporate Fixed Deposits
- Offers higher returns than FDs offered by banks but comes with higher risks
- Choose companies with good credit ratings from agencies like CRISIL and ICRA
Types of Fixed Deposits for NRIs
As an Indian residing abroad, you can invest your funds by booking an FD with an Indian bank or NBFC. Here are the options you have:
NRE Fixed Deposits
- Suitable for NRIs earning in foreign currencies
- Interest is tax-free
- Both principal and interest can be repatriated
NRO Fixed Deposits
- Allows NRIs to hold earnings in India
- Interest is taxed at 30%
- Both interest and principal can be repatriated within limits
Benefits of Fixed Deposits
Here are some reasons why these avenues are a good investment choice:
Predictable Returns
- The interest rate is locked in, so you know exactly what you will earn
- You can use an FD calculator to estimate your earnings
Safety
- Low-risk investment
- Backed by government insurance if you book an FD with a bank
Flexibility
- Choose from various timelines to match your financial goals
Liquidity
- Option to withdraw money during emergencies by paying a small penalty
Higher Interest Rates
- Offers better interest rates compared to regular savings accounts
- For instance, you can enjoy Bajaj Finance FD rates of up to 8.65% p.a.
Eligible Investors for Fixed Deposits
For new investors, booking an FD is a great way to start their investment journey. It is a low-risk option that provides steady and guaranteed returns.
Fixed deposits are accessible to a broad range of investors:
- Individuals
- Sole proprietors
- Partnership firms
- Companies
- Hindu Undivided Families (HUFs)
- Clubs
- Associations
- Societies
- Family trusts
- Non-Resident Indians (NRIs)
- Persons of Indian Origin (PIO)
- Overseas Citizens of India (OCI)
With so many fixed deposit options available, choosing the right one can be tricky. By understanding the main features and benefits of each type, you can easily make a smart choice.
Bajaj Markets is a financial marketplace where you can compare different types of FDs offered by reputed banks and NBFCs. Compare the interest rates and other terms before investing a lump sum amount in an FD.
Once you zero in on an issuer, complete the application form and submit it along with essential documents within minutes. Transfer the funds from your savings account to book an FD seamlessly.
