Fixed deposits (FD) are one of the most preferred sources of deposits among risk-averse investors. If you are looking for a source of investment that is not risky, an FD can be one of the choices that you can consider.
A fixed amount is deposited with a public sector, private sector, or small finance bank, and interest is accumulated on the deposited amount over a fixed time duration.
The interest rate on the FD differs as per the duration and type of financial institution. Usually, the rates for senior citizens are higher by 0.25% to 0.65% as compared to the existing rates.
These are the various types of fixed deposits that are offered by various financial institutions:
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- Normal fixed deposits: These are the normal fixed deposits under which your money is deposited for a fixed duration. The duration of the deposit can range from 7 days to 10 years. The main benefit of this investment is that the rate of interest is higher than the saving bank account.
- Tax-saving fixed deposits: Under this type of FD, you get tax exemption on principal deposits up to Rs. 1.5 Lakh per annum. In exchange for the tax-saving benefit, there is a lock-in period of a minimum of five years and it allows a lump-sum deposit.
- Senior Citizen fixed deposits: This type is applicable for individuals over 60 years of age. These FDs offer better rates as compared to normal FDs. These offer flexible tenure to individuals.
- Cumulative fixed deposits: Under cumulative FDs, interest is compounded every quarter or annual and is paid at the end of the tenure of the FD. This type helps you increase savings over some time.
- Non-cumulative fixed deposits: This type of FD pays out interest on a monthly, quarterly, half-yearly, and yearly basis as per the choice of an individual. This type is better suited for pensioners looking for a regular source of income.
- Flexi fixed deposits: As the name suggests, this is a flexible type of FD wherein the money moves between your FD and the savings bank account. It is suitable for companies and businesses that have idle funds lying in a bank account.
FDs are one of the safest investment choices available to individual investors and businesses. There is no cap on maximum deposit in FDs and are easy to liquidate.
FDs provide a sense of security along with a regular stream of income. Depending on your requirements, you can opt for a cumulative or non-cumulative FD. In case you expect funds from your FD to be paid to you regularly, go for non-cumulative otherwise opt for cumulative which lets you increase your savings pie over some time.
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FDs have been one of the most preferred sources of investment for generations in the country. The safety net it provides along with ease of liquidation is the two most important factors that make FDs an attractive investment proposition.
