Types of Fixed Deposit (FD)

Manish Kothari
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Manish Kothari

Fixed deposits are term deposits offered by banks, NBFCs & other financial institutions. It is a great and traditional way of investing as it helps to grow the savings with a good fixed rate of interest with utmost safety. The fixed deposit with banks offers a high safety as DICGC (Deposit Insurance and Credit Guarantee Corporation) ensures an insurance coverage of up to Rs.5 lakhs of deposit in case of default by banks. The fixed deposit has a flexible tenure which can be chosen as per your convenience. The tenure can vary from 7 days to 10 years and it can be renewed at maturity. The amount we invest in an FD gets locked up for the specified tenure and we get the interest payment at maturity along with the principal or as per the interest payout option chosen at the time of investment. FDs can be prematurely withdrawn by paying an applicable penalty as per the bank rules. Interest earned on these deposits is taxable as per the income tax slab rate of the depositor.

Types of Fixed Deposit (FD)

There are many types of fixed deposit from which an investor choose as per their needs or which suits them best:

Normal Fixed Deposit

This is a general fixed deposit which is available at every bank, post office, NBFC, or other financial institutions. The interest rate offered is generally higher than the savings account. They have a tenure that can range from 7 days to 10 years and provides a fixed rate of interest depending upon the tenure of the deposit. The tenure of the fixed deposit can be renewed after the maturity of the deposit.

Tax Saver Fixed Deposit

As the name suggests, it is a tax-saving fixed deposit that gives the additional benefit of tax saving under Section 80C of the Income Tax Act,1961. It is similar to a normal fixed deposit, but the difference is that it comes with a mandatory lock-in period of 5 years for availing the benefit of tax deduction. An individual can avail tax deductions of up to 1.5 lakh per financial year. It cannot be prematurely withdrawn before the completion of a 5-year lock-in period.

Must Read: Tax Saving Fixed Deposit

Senior Citizen Fixed Deposit

This is a type of fixed deposit offered exclusively for senior citizens i.e who are above the age of 60 years. This FD is the same as the normal fixed deposit but as it is offered to senior citizens, an additional interest rate is provided on the deposit. It has a flexible tenure of deposit which an individual can choose as per their requirement or financial goals.

Flexi Fixed Deposit:

Flexi fixed deposit is a special type of fixed deposit. It is a combination of demand deposit and fixed deposit. An individual who opts for a Flexi deposit can avail the benefit of a saving account, current account, and fixed deposit. These FDs also offer the benefit of premature withdrawal of the deposits without any penalty.

NRI Fixed Deposit

There are two types of fixed deposit for NRI:

  • NRE Fixed Deposit: It is for the individuals who earn in foreign currency and want to convert that into Indian currency. NRI FD is tax-free and no TDS is applicable. The main benefit of this FD is that the individual can enjoy the completed repatriability of investment along with the interest. There is one negative point about NRI FD that the amount deposited is subject to the risks of fluctuations in the currency rates.
  • NRO Fixed Deposit: This FD is for the NRIs who have earned income in India. The major difference between NRO & NRE FDs is that the interest earned on NRO FDs is taxable as per the Indian tax laws. It is taxed at the rate of 30% according to the Income Tax Act,1961. Also, the interest earned is completely repatriable after deducting the applicable taxes but the principal amount is repatriable up to the limit set by the bank. It also differs from NRE deposit in a way that it is not subject to the risks of currency rate fluctuations.

Must Check: SBI FD Interest Rates

Features of Fixed Deposits

  • Fixed deposits have a flexible tenure which can vary from 7 days to 10 years.
  • FDs have a fixed prescribed interest rate depending upon the tenure.
  • Fixed deposits have a lock-in period till maturity.
  • Fixed deposits have an option of premature withdrawal subject to a penalty. However, withdrawals are not allowed in case of tax-saving FDs.
  • The interest rate can vary from 3% to 7.5% depending upon the offering bank or financial institution.
  • Fixed deposit interest is taxed as per the income tax slab of the depositor. It is subject to a 10% TDS if the interest earned exceeds ₹40,000 in a financial year.
  • FDs are considered as a very low-risk investment instrument and is one of the most popular and traditional ways of growing our savings.

Difference between cumulative and non-cumulative fixed deposit :

  • Cumulative Fixed Deposit: In a cumulative fixed deposit, the interest payment is made along with the principal amount at the time of maturity only. The interest earned on deposits gets reinvested to offer compounding benefits to depositors.
  • Non-Cumulative Fixed Deposit: In a non-cumulative fixed deposit, we have an option to choose from monthly, quarterly, half-yearly, and yearly payout options for receiving the interest payouts.

Who can open a Fixed Deposit Account ?

The below-mentioned individuals, corporates, or institutions are eligible to open a fixed deposit account:

  • Indian Resident
  • Minors
  • Senior Citizens
  • Companies
  • Partnership firms
  • Sole proprietorship firms
  • NRI

Frequently Asked Questions (FAQs)

Q. which type of fixed deposit is best in India

A. Corporate fixed deposit schemes offer highest return on your investment. Corporate Such as Mahindra Finance Fd Rates and Shriram Finance fd Rates

Q. Do fixed deposits offer special rates for senior citizens ?
A. Yes, fixed deposit offers the benefit of additional interest rate for the senior citizens above the age of 60 years.

Q. Can the saving account be linked with a fixed deposit account ?
A. Flexi Fixed deposit gives the benefit of linking the saving account with a fixed deposit account.

Q. What is the minimum and maximum amount required to open a fixed deposit account ?
A. The amount of minimum deposit varies across banks. However, the minimum amount of deposits generally starts from an amount as low as Rs.1,000.Also, there is no upper limit for the fixed deposits but again it can vary from bank to bank.

Q. Is tax applicable to interest rates earned on FD ?
A. Interest earned on the fixed deposits is taxable as per the income tax slab of the individual. FDs are subject to TDS at the rate of 10% if the interest earned on deposit in a financial year exceeds ₹40,000.

Q. Does the FD offer tax benefits ?
A. If the tenure of the deposit is 5 years or above, then only individuals can avail the benefit of tax deduction of up to Rs.1.5 lakh per financial year under Section 80C of the Income Tax Act, 1961. You can choose a tax saver fixed deposit to get the tax benefit.

Also Read:

Yes Bank FD Interest Rates
What is Fixed Deposit
HDFC Bank FD Interest Rates
AXIS Bank FD Interest Rates
Bank of Baroda FD Interest Rates
PNB FD Interest Rates

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