Choosing the best investment option for yourself can sometimes prove to be an arduous task. There are numerous financial instruments, such as mutual funds, bonds, and stocks, that claim to be an excellent option. However, if you are new to the world of investing, different types of fixed deposits would be the perfect way to get started. They are an ideal investment option for people who do not wish to take risks but would still like to increase the value of their money.
- FDs are deposit accounts held at financial institutions for a set period at a predetermined interest rate
- Whether you are a resident of India or an NRI, fixed deposits are an excellent risk-free investment option
- Fixed deposits
What is a Fixed Deposit?
Fixed deposits are the safest way to invest and grow your money. The different types of fixed deposits make successful and simple investing possible by providing adjustable tenors and guaranteed returns. You make a lump-sum deposit with a bank or a non-bank financial company (NBFC) for a fixed term at a fixed interest rate.
Different types of fixed deposit accounts are available with different maturity periods ranging from seven days to ten years. This adaptability allows you to meet your short- and long-term financial objectives.
Types of Fixed Deposits
Standard Fixed Deposits
Standard fixed deposits are a type of FD investment plan in which you put money down for a set period of time at a predetermined interest rate. The investment or tenure time can be anything from seven days to ten years. The rate of interest offered is determined by the length of time invested as well as the financial institution that provides this instrument.
Tax Saving Fixed Deposits
Tax-saving FDs are a type of fixed deposit that is eligible for tax deductions. A tax-saving type of fixed deposit account has a 5-year maturity period, and the principal amount is tax-deductible up to ₹1,50,000 per year under section 80C of the Indian Income Tax Act.
Senior Citizen’s Fixed Deposits
Banks and NBFCs (Non-Banking Financial Companies) give a greater interest rate on FDs to those over the age of 60 than to other investors, usually by 25-50 basis points (0.25-0.50 percent). They also have an added tax benefit. If the value of the FD does not exceed ₹50,000 per year, there is no tax deducted at the source.
Flexi Fixed Deposits
Flexible fixed deposits are connected to your savings account. Using the auto sweep-in function, you can instruct your bank to automatically move any amount above a certain value to a fixed deposit. For example, if you desire to keep a monthly balance of 20,000, any excess will be moved to a savings account. If your balance falls below 20,000, the bank will liquidate a portion of your FD to keep your account in good standing. It provides you with liquidity and investment opportunities.
A flexible type of fixed deposit account offers higher interest rates in comparison to savings account interest rates but is lower than other types of fixed deposit interest rates.
Corporate Fixed Deposits
Different types of fixed deposits are also available from some businesses or corporate bodies. Although corporate FDs offer a higher rate of interest than banks and NBFCs, they also carry a higher risk. And while bank and NBFC deposits are backed and insured by the DICGC, corporate fixed deposits are not. In case the company goes bankrupt, there is no certainty that your money will be returned.
Fixed Deposits for NRIs
Non-resident Indian citizens can invest in fixed deposits in the form of non-resident external (NRE) or non-resident ordinary (NRO) accounts. NRE FDs are a good option for citizens earning in foreign currencies. Despite currency changes, the most major advantage of NRE type of fixed deposits is that the entire amount is tax-free, both principal and interest. However, NRO type of FDs are taxable at 30% per year and can be placed in Indian or foreign currencies.
Who is Eligible to Apply for Fixed Deposit?
- Individuals who are citizens of India
- Hindu undivided family
- Minors, with parental or guardian consent
- Non-resident Indians
- Sole proprietorships, partnership firms, public or private companies
- Statutory boards or local authorities
- Registered societies
Did You Know?
Different types of fixed deposits maintained in banks up to ₹5 lakh are insured in India under the Reserve Bank of India’s deposit insurance plan. If you intend to invest more than ₹5 lakh, it is best to spread your money across different banks.
How to Set up a Fixed Deposit Account?
Investors can easily open any type of fixed deposit account online and save time along with other benefits like easy payments, renewal, and closure processes.
- Visit the website of the desired bank or NBFC where you wish to open your FD account.
- Log in to your ID or create a new account if you do not have one already.
- Select the ‘Create Fixed Deposit’ option.
- Fill in the required details for account and nominee.
- Once you verify all the details, the FD amount will be debited from your savings account and your chosen type of fixed deposit account will be created.
- The chosen bank or NBFC will share an e-receipt for the chosen type of fixed deposit account’s creation. You can download the receipt and keep it for future reference.
However, if you do not wish to create an FD account online, you can visit the bank of NBFC of your choice and do it in person. Remember to carry all necessary documents like Aadhaar Card, PAN Card etc., with you.
How to Find the Right Fixed Deposit
Since FDs have a fixed interest rate, your returns are reliable and risk-free. If you wish to get the most out of your FD investment, it is important that you choose a type of fixed deposit that provides you with the best perks. It should also meet your criteria. Here’s how to pick the best type of fixed deposit for your needs:
- Select a bank or NBFC that offers at least 5% interest rate.
- If you are investing with an NBFC or in a corporate type of fixed deposit, cross-check their credibility.
- Pick a bank or NBFC where the application process creating creating and dissolving any type of fixed deposit account is easy.
- Pick a type of fixed deposit account that works for your financial goals.
- Check if the chosen institution has a rate of penalty on different types of fixed deposits in case of early withdrawals.
Word to Remember
NRE or Non-Resident External accounts are a Rupee accounts opened by NRIs to deposit their earnings in foreign currencies. The benefit of NRE FDs is that the interest and the principal amount invested are both tax-free.
Fixed deposits have been a popular investment option amongst conservative investors who do not wish to take risks and prefer guaranteed returns. They are also an excellent way for novices to get started on your investment portfolio and make your savings work for you.
Anyone who fulfils the eligibility criteria can open a fixed deposit account. Parents or guardians can even open an FD account for a minor as young as one year old.
You will receive interest payments based on the type of fixed deposits account and plan chosen. There are monthly, quarterly, and annual payment options available. And if you choose the reinvestment option, you will receive full interest along with the principal amount upon maturity.
Yes, you can open a fixed deposit with someone else, such as your parents, siblings, or spouse. In a joint fixed deposit, the TDS is paid by the first account holder. And the interest is also paid to the primary account holder.
Yes, closing any type of FD account is just as easy as opening. To do it online, you can log in to your bank or NBFC’s account and choose the ‘close account’ option. Once you are done with the process, the amount will be credited to your connected savings account.
Fixed deposits are investment accounts where you can deposit your money for a set period of time and earn interest.
Read more about Features of Fixed Deposit.