Types Of Fixed Deposit

The hard-earned money has two fates: either to be spent or to be saved. Expenditures can not be limited, but spending can be mindful. Depositing the money in a bank allows easy transfer and transaction, which does not serve the purpose of savings. A fixed deposit has been a traditional option for a long. Offering fixed interest, it also serves as a stable source of income. The option is again not limited. Rather, banks and financial institutions offer different types of fixed deposits. Let us explore them to bring forward the possible options for better decision-making. 

What is a Fixed Deposit?

Abbreviated as FD, Fixed Deposit is a type of investment where an individual invests a specific amount of money for a fixed tenure. The individuals get interest on the deposited amount according to the already stated fixed rate. The catch is the inability to use the money until the tenure is over, making it actually a saving option. Additionally, there are options to redeem the interest, where it can be set to a frequency of monthly, quarterly, half-yearly or annually. Otherwise, individuals can opt out of the feature and get the complete amount along with interest at the time of maturity. 

Types of Fixed Deposit

The different types of fixed deposits are: 

Based on Different Needs

There are three types of fixed deposits serving different needs. 

Conventional Fixed Deposit

It is the most common type of FD, whose features are covered in the definition. It involves a deposit of a fixed amount of money for a set time and interest. The time of return can be set for a fixed period. The conventional fixed deposit can be opened via a physical visit to the bank or online mode. 

Tax-saving Fixed Deposit

This type of fixed deposit is helpful in saving tax up to INR 1.5 lakhs. It offers protection from tax benefits under Section 80C of the Income Tax Act. The tax-saving fixed deposit helps income while saving taxes. However, it must be noted that the lock-in period is five years, it lacks the option for premature withdrawals, and the interest earned is taxable and deducted at source (TDS). These deposits are available to open in a single or joint account. 

Senior Citizen Fixed Deposit 

Senior Citizen Fixed Deposit, These are an interest option for senior citizens aged around 60 or more. They get relatively additional interest on the amount and offer a premature withdrawal option. The tenure ranges from 7 days to 10 years. 

Based on the Return Period

These are of two types depending on the return period:

Cumulative Fixed Deposit

The cumulative fixed deposit is where earned interest is added to the principal amount in the Fixed Deposit account. It means you will get the total principal amount and interest back to you only at the time of maturity of the fixed deposit. It is the source of higher investment returns. 

Non-cumulative Fixed Deposit

The interest is paid based on tenure selected by the individual. They can put the frequency to be monthly, quarterly, half-yearly or annually. It serves as the regular income source. 

Based on the Return on Maturity

Here again, there are two types: callable and non-callable fixed deposits. 

Callable Fixed Deposit

It allows withdrawing money before the maturity date. The process is associated with charges or fines. 

Non-callable Fixed Deposit

The Non-Callable Fixed Deposits do not come with the option to be withdrawn before maturity. The interest rates here are higher compared to callable fixed deposits. 

Special Fixed Deposits

These are similar to conventional fixed deposits. However, they offer better returns with higher interest on following the schemes through a specific period. 

Flexi Fixed Deposit

The Flexi fixed deposit account is linked to the savings account. It allows the transfer of excess money from a savings account to a fixed deposit account. 

Corporate Fixed Deposits

Here, the deposits are done with companies rather than banks. The return rates are higher compared to traditional sources. Generally, financial institutions and Non-Banking Financial Companies (NBFCs) offer corporate fixed deposits. A well-researched choice is required in choosing the company. It should be done by checking the credit ratings from repute credit rating agencies such as CRISIL. Moreover, the investors must be aware of the associated risks, which include the inability to recover the money in case the company defaults. 

Types of Fixed Deposit for NRIs

Non-resident Indians can also open their fixed deposit accounts in India. Here’s how: 

NRE Fixed Deposits 

The abbreviated form for Non-Resident External Fixed Deposits is the option for individuals to convert their money from foreign currency to Indian value. The fixed deposit offers tax-free interest. The deposited money is provided according to the currency rate at the time, which might lead to loss if the value falls. 

NRO Fixed Deposits

Abbreviated form for Non-resident Ordinary accounts, these are taxable fixed deposits. Following the Income Tax Act of 1961, the NRO FD is taxable at 30%. The deposit might also involve the repatriation of the principal amount within a specific limit. Yet, NRO fixed deposits serve the advantage by protecting from the fluctuations of the exchange rate. 

Benefits of Fixed Deposit

There are multiple benefits of fixed deposits, which include: 

• You can take a loan against a fixed deposit.
• You have the option to overdraft your fixed deposit. 
• Fixed deposits offer guaranteed returns without the risk of loss. 
• It provides an option to save the tax with a value ranging up to INR 1.5 lakhs 
• Opening and closing the fixed deposit account is possible without visiting the branch, making it an easily accessible option 

How Can You Choose the Right Fixed Deposit?

With numerous options for fixed deposits, finding the right one that suits your needs is challenging. Here are some parameters to consider before selecting the fixed deposit: 

Interest rate: Compare the interest rates offered by different banks. Find the one with the highest rate, which generally goes for longer tenures. Senior citizens are offered comparatively higher rates.  

Lender’s credibility: You must know if the bank or financial institution of your choice is trustworthy or not. Check for the ratings from CRISIL or ICRA. 

Loan facility: Generally, up to 90% of the fixed deposit amount can be sanctioned as a loan. Check the same and other related conditions to have clarity in the time of need. 

Premature withdrawals: Be aware of the penalty incurred on premature withdrawals. Choose the bank that offers the lowest one. 

Cumulative vs non-cumulative: Check if the bank meets your requirement of cumulative or non-cumulative return needs. Choose the one that delivers what you need. 

Conclusion

Fixed deposits are among the top sources of saving money while also gaining returns on the same. Associated with fixed interest rates, the deposits are of multiple types in different aspects. Going through all the possible options and then considering important parameters is critical to make a wise decision. The article encompasses all of it for better enlightenment.