Types of Fixed Deposits

Fixed Deposit is a financial tool that has enjoyed iron-clad trust of the general population since decades, when it comes to savings. Since it is a bank-based investment product, closely monitored by RBI, investors are assured of its safe and low-risk nature. The money deposited is safe and is easily redeemable with interest once it reaches maturity.

• Earn higher interest than savings account
• Flexibility in the amount and tenure
• Tax deduction up to Rs.1, 50,000 under Sec 80C for principle amount
• Interest earned is taxable
• Loan against FD can be taken
• Premature withdrawal not available but with riders

Fixed Deposits can be basically categorized into 5 types

• Short term and long term FDs
• Tax saving FDs
• Senior citizen FDs
• Cumulative and non-cumulative FDs
• Flexi FD

1)     Short Term / Long Term FD

Depositors can make FD for as little as 7 days. The longest term FD is of 20 years offered by IDBI Bank. So this present great choice for depositors as far as saving their investment for desired period is concerned. Fixing FD will result in higher interest income than saving account and therefore investors / depositors shall make use of FD option as compared to saving account. The FD rates depend on fund requirements of banks amongst other factors and as such sometimes short term FD can carry higher rate than long term FD.  Therefore an investor must research about the various options before finalizing on investment. Refer our article "All about Fixed Deposits" to know which banks offer highest interest rates

2)     Tax Saving FDs

This represent Tax efficient avenue for conservative investors. In this FD, investment is locked for 5 years and investors can avail Tax exemption for the principle amount up to Rs 1.5 Lakhs Again rates will vary across banks even though tenure is same. This means investor can rate up to 1% extra just by doing a 5 minute research on rates.

3)     Senior Citizen FD

To get eligible for this FD, age of citizen should be 60 or more on the date of investment. Senior citizens FDs earn higher interest in tune of 0.25% to 0.75% as compared to regular deposit rates. In addition to usual documents required for FD, Age Proof is also required to open Senior Citizen FD 

4)     Cumulative and non-cumulative FDs

In non cumulative FD, the interest is paid on a monthly, quarterly, or annual basis as desired by investor while signing FD. Such scheme is most suitable for an individual depend on regular interest income.

On other hand, in non cumulative FD, no interest payable on regular interval and instead it is compounded every quarter / year and payable at the time of maturity with the principal. In this FD, the compounded interest is then reinvested with the principal amount. This arrangement results in higher maturity amount and therefore also known as multiplier scheme.

5)     Flexi FD

Investors are constantly seeking for innovative product which will serve their interest/purpose better. An example would be a Flexi FD. As name suggest this type offers more flexibility to investors than conventional FD. A Flexi FD offers dual advantage of higher interest rates similar to Fixed Deposit and Flexibility of Saving account. In this FD, surplus amount beyond a predetermined amount will be transferred to fixed deposit account. This amount will be treated as FD and will earn higher interest than saving account but at same time retaining liquidity feature. So this is a great tool in case you have excess cash and don’t have a fixed/clear timeline to invest/ utilized fund. There is no penalty in amount withdrawn from FD fund. Please refer our article on Flexi Deposit wherein detailed information along with Flexi plans of different banks are shared.

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