Types Of Fixed Deposit

What are The Different Types of Fixed Deposits?

Fixed deposits are not all the same. There are many types of fixed deposit plans. Each one works in a different way. But the main idea is the same. You put money in, wait for some time, and get it back with interest.

Some fixed deposits give you interest payout every month. These may be suitable if you are looking for regular income. Some give all the money with interest at the end of term. These may be suitable if you want a lump sum amount at the end of term. Some FDs help you save tax, some are only for senior citizens, some are offered by banks while others are offered by institutions like post offices.

There are also FDs for children and for people who live outside India. Some plans are flexible and let you withdraw early. Others lock the money for a fixed time. With so many different types of deposits, you can choose one that suits your needs.

Types of Fixed Deposit

There are many types of FDs available in India. Each one is made for a special reason. Some give regular income, some help save tax, and some are flexible. You can find FDs from banks, post offices, and even companies. Choose the one that matches your needs and future plans.

Cumulative Fixed Deposit

In a cumulative fixed deposit, the interest earned is compounded and added to the principle amount, wherein the total amount is paid out at the end of the FD’s term. Basically, the interest earned is reinvested, yielding higher returns through the power of compounding.

Non-Cumulative Fixed Deposit

In a non-cumulative fixed deposit, the interest earned is paid out at regular intervals like monthly, quarterly, half-yearly or yearly. This provides regular income stream for the depositor.

Tax Saver Fixed Deposit

A tax saver fixed deposit helps you save on taxes. An investor can claim a deduction of up to 1.5 lakhs per financial year, under section 80C of the Income Tax Act, 1961. Your money stays locked in for 5 years. If the money is withdrawn before the lock-in period ends, the deduction would be considered as income in the year of you withdraw money from your FD and will be taxed as per your income slab. The interest earned on these deposits however are taxable.

Post Office Fixed Deposit

A post office fixed deposit is a safe investment offered by the Indian government (post office) . It provides guaranteed returns and can be a suitable option for those who prefer security over higher interest rates.

Flexi Fixed Deposit

A flexi fixed deposit combines a regular FD with either a savings or a current account. It allows you to make easy withdrawals from the FD account without closing it. The remaining sum continues to grow at applicable interest rates.

Standard Fixed Deposit

A standard fixed deposit is the most common type of FD. You choose the amount and tenure. The money is locked for the chosen period, and you get fixed interest over time.

Regular Income Fixed Deposit

A regular income fixed deposit provides interest payouts at regular intervals—monthly, quarterly, or annually. It may be suitable for people looking for a steady income stream while keeping their money safe.

Senior Citizen Fixed Deposit

Senior citizen fixed deposits offer higher interest rates for people over 60. It’s a safe and steady way for older individuals to grow their savings while enjoying returns .

Minor Fixed Deposit

A minor fixed deposit allows parents or guardians to open an FD for children. The funds become accessible to the child at age 18, helping to secure their future financial needs.

Corporate Fixed Deposit

A Corporate Fixed Deposit (FD), also known as a company FD, is a type of term deposit offered by corporations (particularly NBFCs), to raise capital. The amount deposited by investors for a fixed period earns a predetermined interest rate upon maturity. Corporate FDs usually offer higher interest rates compared to traditional bank FDs, but the risk profile is also high.

. Always check the company’s credit rating from agencies like CRISIL or ICRA.

Types of Fixed Deposits for NRIs

NRIs can choose from NRE, NRO and FCNR fixed deposits. Lets take a look at these 3 below:

NRE Fixed Deposits

NRE (Non-Resident External) fixed deposits are for NRIs to park their foreign income in India. These deposits offer tax-free interest and are fully repatriable.

NRO Fixed DepositsNRO (Non-Resident Ordinary) fixed deposits are for NRIs to manage income earned in India. These deposits offer attractive interest rates but are subject to tax. Repatriation of funds is allowed after tax deduction.

FCNR (Foreign Currency Non-Resident)

Deduction FCNRs are similar to FDs for Indian residents except they are in foreign currency. NRIs can open an FCNR account, which is a foreign currency denominated account. Since money is stored in foreign currency, the impact of exchange rate swings is minimized.

Conclusion

In summary, types of fixed deposits provide various options to suit different needs. Choosing the right one depends on your goals and how soon you need access to your money.

FAQs

Who should invest in tax-saving FDs?

If you want to reduce your tax liability, can lock your amount for 5 years and are looking for risk-free returns, tax-saving FDs may be suitable for you.

How are senior citizen FDs different from regular FDs?

Senior citizen fixed deposits pay higher interest rates than regular fixed deposits. Senior citizen fixed deposits are for investors aged 60 and older and will give them better returns on investments which are important to secure the retiree's retirement funds and cash flows.

What is a flexi fixed deposit?

A flexi fixed deposit allows the depositor to link the FD with a savings account or current account, which allows you to make easy withdrawals and still enjoy the FD interest rates, which opens the opportunity for more flexibility.

Can NRIs open Fixed Deposits in India?

Yes, NRIs are allowed to open Fixed Deposits in India. They can invest in NRE, NRO or FCNR FDs.

Is there any risk involved in investing in fixed deposits?

Fixed deposits are low-risk investments. However, there are potential risk , like early withdrawal penalties.

Can I withdraw money before maturity in all types of FDs?

No, not all types of FDs allow early withdrawals. Some fixed deposits, like tax-saving FDs, lock your money for a fixed period, while others, like flexi FDs are linked to savings/current accounts and allow easy withdrawals.

How do I choose the best type of fixed deposit for my needs?

To choose the best FD, consider your financial goals, whether you need regular income, tax benefits, or flexibility. Match the FD type to your investment horizon and risk tolerance.

Are interest rates the same for all types of FDs?

No, interest rates vary depending on the FD type. Bank FDs, company FDs, and senior citizen FDs may have different rates. Rates are also influenced by the tenure and amount invested.

What happens if I break an FD before maturity?

Breaking an FD before maturity can lead to penalties, such as reduced interest rates. You may also forfeit some of the earned interest.

Which type of FD offers monthly income?

Non-cumulative fixed deposits offer monthly income. You can choose to receive interest payouts monthly.