Fixed Deposit (FD): Who, What, When and Why

Have savings money, but want to make money off earn with at the same time? A Fixed Deposit (FD) can help you do that; learn about the types of Fixed Deposit available today.

A safe investment option, a Fixed Deposit is a bank deposit account which guarantees the investor a fixed rate of profit. In return, the investor does not withdraw the funds for a fixed period of time.

Fixed Deposit investment is a debt investment and not an equity investment. This signifies that the investor gets all of the money after the term. There is no chance of losing money, as the amount that is lent to the bank will be there for a period of time and the interest added up as well. In equity investment, the investor would be made the owner, and the risk of losing money is higher.

When you invest in a Fixed Deposit account, you are recognized as the lender and the bank as the borrower. The responsibility of guarding the money lies with the bank. You as an investor will not have to worry, as banks are a safe medium for financial matters.

It provides a steady stream of income particularly to those who do not save funds otherwise. If you use a savings accounts, the chances of you withdrawing is higher, hence there will be no saving. But as this is in the bank for a period of time, the chances of saving and earning money is more.

Types of Fixed Deposits

Standard Fixed Deposit

These are regular Fixed Deposit accounts with a broad spectrum of fixed tenures from a week to ten years. The interest rate is fixed according to the reference rate when you open a fixed deposit account.

Special Fixed Deposit

Investors can apply the deposits for special periods like 190, 290, 390 days etc with highest interest rate on Fixed Deposits.

Tax-Saving Fixed Deposit

Here, there is a minimum deposit period of 5 years and a maximum of 10 years. For 5 years, there is no withdrawal from this scheme. Investors get the advantage of tax saving through exemption under section 80c tax act, though the interest received is fully taxable.

Floating-Rate Fixed Deposits

The floating rate Fixed Deposit scheme is where the interest rate is not fixed for any period of time and varies with any difference in the reference rate. Investors can take advantage of the change in interest rate due to RBI’s rate change.

Features of Fixed Deposit Accounts

• It inculcates the habit of saving. The money you deposit needs to be in the bank for a set period of time. This helps you not make withdrawals and this, in turn, can be good savings for future needs.

• Fixed Deposit allows assured return, so as an investor you will have the peace of mind with Fixed Deposit as compared to investment in commodity or stock market.

• Fixed deposits are adjustable in nature because you can have a Fixed Deposit with maturity for a month, a year or for ten years, and being able to invest any amount of money, proves to be the best way to start saving small.

• Fixed Deposit is liquid, where you can withdraw the money for various purposes like sickness, marriage, and other important needs. Premature withdrawal usually results in loss of a little bit of interest income but it is better than selling real estate or stocks investment where you will not be able to sell the asset instantly and mostly at a distressed value rather than true value.

Bajaj Finserv offers a flexible Fixed Deposit: Cumulative or Non-cumulative.

• A cumulative fixed deposit scheme is where the interest rate is due when the term matures.

• Non-cumulative fixed deposits offer monthly, quarterly, half-yearly or annual interest payments on the amount invested.