Whenever any account holder deposits money in a single or multiple financial institution such as a bank, they receive interest on the deposited amount. The banks make a profit at the same time by lending money to customers and businesses. However, an account holder who has a savings account can withdraw his deposited money at any time, which might leave the bank with lesser capital, and they might face problems while lending to their customers. This is where a term deposit helps any financial institution to overcome this situation. A fixed deposit and term deposit are similar investment schemes. Read this article to get an in-depth detail of term deposit vs fixed deposit.
What is a Term Deposit?
A term deposit is an investment that is made for a specific period, including the money deposited in an account in any financial institution. Term deposit investments usually come with short-period maturities that might range from one month to a few years.
What is a Fixed Deposit?
An investment using which you can earn a good amount of money over a specific time period at a fixed rate of interest is called a fixed deposit. This investment option is extremely secure and comes with guaranteed interest rates. Moreover, this investment scheme provides amazing interest rates for senior citizens, zero market-related risks and several interest payment options. There is no effect of the market fluctuations on the interest rates, and hence, you can earn higher returns on maturity once the lock-in period is completed. Moreover, you get the option to select the periods at which you want your interest. However, you cannot withdraw money from a fixed deposit pre-maturity, but if you are willing to do so, you must pay a penalty.
Term Deposits – Key Features
When the interest rates are increasing, more customers invest in term deposits, as the increasing cost of lending makes savings highly attractive. Moreover, with increased interest rates in the market, the investor receives higher interest rates from the bank so that the customer can earn good returns.
- Further investment period, term deposits come with a fixed rate.
- Term deposits are safe and secure investments and are risk-free because FDIC and NCUA follow them.
- When an investor holds multiple maturities, they can create an investment ladder by differentiating their termination dates.
- The minimum deposit account for any kind of term deposit is quite low.
- In the case of larger deposits, an investor can earn higher interest for their term deposits.
Fixed deposits –Key Features
Some of the crucial features of fixed deposit are:
- Fixed deposit returns are never affected by market fluctuation and offer profitable returns at a fixed rate of interest.
- There is no or very little risk of Principal loss.
- The interest rates and fixed deposits provided by NBFC are comparatively higher than those of banks.
- An investor can easily renew their fixed deposits.
- An investor can avail a loan against their fixed deposit for around 75% of the amount deposited.
- For managing your monthly expenses or other personal expenses, you can go for interest payouts on a periodic basis.
- As a senior citizen, you can avail higher interest rates on your fixed deposits.
Term Deposit – Benefits
An investor who decides to invest in a term deposit can avail of multiple benefits. Some of them are:
Guaranteed Returns
As the returns are already discussed in term deposit investments, the investor is already aware of the interest rates they will earn or receive on maturity.
Lesser Risk
In term deposit, the remuneration is already decided. Hence, investing in term deposits is considered a safe investment tool as compared to the other options available for savings.
Flexibility in Date of Maturity
It depends on the investor on what time period they are willing to deposit their money in the term deposits.
Fixed Deposit – Benefits
Fixed Returns
With fixed deposits, you get assured returns on your investments. Moreover, your capital stays secured in fixed deposits, and you earn higher returns as compared to the savings account.
Compounding
You can earn interest with a fixed deposit and avail faster multiplication of funds and higher returns.
Reduced Minimum Investment
If you are willing to implement a savings habit but do not have large funds to do so, you can avail of a fixed deposit, as it is a perfect option for investments as low as Rs. 500.
Liquidity
You can withdraw funds from your fixed deposits before maturity. However, you might lose certain interest during the duration missed. But on the other hand, you have liquidity and can withdraw funds from fixed deposits during emergencies.
Easy Process
Fix deposit is one of the easiest tools for investment in both online and offline procedures. You can also invest through mobile banking or net banking in a fixed deposit.
Higher Returns For Senior Citizens
Fixed deposits provide higher returns on investments to senior citizens as this should not compromise their retired life.
Term Deposit Vs Fixed Deposit
Refer to the table below to acknowledge some of the key differences between term deposits and fixed deposits:
| Factors | Fixed Deposit | Term Deposit |
| Flexibility | This saving scheme needs the investor to deposit the whole amount at once, which gives them less flexibility. | In term deposits, investors can deposit their investments in installments, which offers them great flexibility. |
| Interest Rate | The interest rates offered in fixed deposits are guaranteed and safe. | Term deposits promise their investors a higher interest rate. |
| Tenure | Under fixed deposits, you need to keep your investments for longer durations. | Term deposit offers its investors a shorter tenure period. |
| Profit Margin | Under fixed deposits, investors can assure good returns. | Term deposits are highly beneficial for the investors as the bank pays lower interest to the customer, as compared to what it charges from its clients. |
Conclusion
When discussing term deposit vs fixed deposit, both differ from one another on the basis of interest rates, tenure, investment amount, installments and flexibility. It depends on the investor on the type of saving instrument they want to invest in and the amount they want to deposit. Hence, both are beneficial in different ways, and it depends on the factors of the schemes that align best with the needs of the investor.