Types of Fixed Deposits

[Shashank Bhaskar]

Fixed deposits are a popular investment option. They are safe and provide guaranteed returns for the funds locked in with the bank. The principal amount stays for a fixed duration which earns interest and is subject to withdrawal only on maturity. Pre-mature withdrawals get charged with a penalty, but the liquidation process is easy. 

Fixed deposit interest rates are higher than a regular savings account, making it an attractive option for long-term financial investments. There are different types of fixed deposits to fulfil specialised needs, and they are: 

Standard Fixed deposit: It is offered in almost all banks. You deposit your funds with the bank for a pre-determined period and earn fixed interests on them. It ensures the security of your investment and does not involve risk. The deposit tenure is between seven days to 10 years, and interest earned depends on tenure longevity. 

Tax-saving FD: You get tax exemption under the section 80C for savings of up to Rs. 1.5 Lakh yearly in these deposits. You make a lump-sum deposit that remains locked in with the bank for five years and does not qualify for pre-mature withdrawal. However, the interest generated is taxable if it exceeds Rs. 10,000. 

Cumulative and Non-cumulative FD: You get the returns on your investment only upon maturity in Fixed cumulative deposits. The interest pay-out is flexible for non-cumulative as the banks periodically pay the interest earned. The FD interest rates are higher in former and lower for the latter due to frequency of interest pay-out. You can opt for either depending on your need.

Senior Citizen Fixed Deposit: They are specifically for the elderly above 60 years. It has the highest FD interest rates. It is to help the retired senior citizens rely on steady funds. For this reason, banks also provide flexible interest pay-out facilities. It can also be a tax-saver deposit if maintained for a tenure of five years under section 80C.

Flexi Deposit: It is a combination of savings or current account with Fixed Deposits. Therefore, it provides the benefits of high FD rates with the liquidity of regular accounts. It gives flexibility and convenience to the depositors. Its Auto-sweep feature automatically transfers excess balance from savings to FD for a term of one year. 

You can evaluate the different categories available and select what meets your needs best. Banks provide various facilities to assist you like mobile banking apps that you can use to operate such accounts.