Understanding Fixed Deposits – Features, Benefits, Eligibility Criteria

Fixed Deposits Features, Benefits, Eligibility Criteria
Fixed Deposits Features, Benefits, Eligibility Criteria

Fixed deposits, which have become a popular choice for safe and secure investments, are particularly appealing to new investors. While opening a fixed deposit is relatively straightforward, there are a few important factors to be aware of.

To help you understand more about fixed deposits, here is a summary of their features, benefits, eligibility requirements, and types.

What is a FD?

A fixed deposit (FD), also known as a term deposit or time deposit, is a type of investment offered by banks and non-banking financial institutions (NBFCs). It is a safe investment option that allows users to deposit a lump sum amount with a financial institution for a specific period of time. FDs offer a range of other features, including:

  • You can earn interest on the amount you deposited for a fixed period of time, at a predetermined interest rate.
  • The interest rate on a fixed deposit does not change, regardless of fluctuations in the market or other interest rates.
  • You can earn interest either periodically or when the fixed deposit matures.
  • Some banks may charge a penalty for withdrawing fixed deposits before they mature, but Paytm Payments Bank does not have this penalty. You can redeem your fixed deposit at any time without incurring a penalty.

Key Features of Fixed Deposits

Listed below are all the features of fixed deposits that you should know before investing in them:

  • Before opening a fixed deposit account, you should decide on the amount you want to deposit. Any additional funds must be deposited in a separate account.
  • Fixed deposit accounts typically offer higher interest rates compared to other investment options.
  • The returns on a fixed deposit are not affected by market fluctuations.
  • Some banks may charge a penalty for withdrawing fixed deposits before they mature, but Paytm Payments Bank does not have this penalty. You can redeem your fixed deposit at any time without incurring a penalty.
  • Fixed deposits offer guaranteed returns.
  • You can choose to earn interest on your fixed deposit on a monthly, quarterly, annual, or at maturity basis.
  • Fixed deposits are generally considered to have low liquidity, but Paytm Payments Bank offers highly liquid fixed deposits. You can redeem your fixed deposit at any time, and you can also use the money from your fixed deposit to pay at offline and online stores if your savings account balance falls short.
  • Fixed deposits can be renewed after they mature.
  • There is no maximum limit on the amount that you can deposit in a fixed deposit account.

Benefits of Fixed Deposit

The following are some of the advantages of a fixed deposit:

1. Safe Investment Option

Fixed deposits (FDs) are considered to be one of the safest investment options, as they offer a fixed rate of interest that is not affected by market conditions. This makes them a reliable and stable investment option.

2. Assured Rate of Interest

Fixed deposit (FD) holders are guaranteed to receive a set rate of interest on the amount they have deposited. Many banks provide online calculators that allow FD holders to calculate the interest they will receive upon maturity of the FD. These calculators can be found on the banks’ websites.

3. Hassle-free investment

To invest in fixed deposits (FDs), you can use a savings account. You can invest in an FD by visiting a bank branch or investing online. When the FD matures, you have the option to renew it or have the amount credited back to your account.

4. Compound interest

If you choose to reinvest the amount of your matured fixed deposit (FD), you may be eligible to earn compound interest. Compound interest means that you will earn interest on the principal amount of your FD as well as on any interest that has accumulated. This can result in a higher overall return on your investment.

5. Tax Saving

In India, many banks offer tax-saving fixed deposit (FD) options to their customers. These FDs allow customers to lower the amount of taxable income they must pay by investing a portion of their income in an FD.

6. Flexible Tenure

Fixed deposits (FDs) have a range of terms that investors can choose from, ranging from 7 days to 10 years. FDs can be used to meet both personal and business needs. For example, if you want to access your money after 5 years, you can invest in a tax-saving FD with a 5-year lock-in

7. Loan against FD

An individual can use the funds from a fixed deposit (FD) to finance themselves, rather than taking out an unsecured loan with a higher interest rate. Loans taken out against an FD have a lower interest rate than the interest rate on the FD itself. Additionally, taking out a loan against an FD does not require the depositor to cancel their FD. They can continue to earn interest on the FD while also using the funds from the loan for their financial needs.

Types of Fixed Deposits

There are various types of fixed deposit options available in the market; by comparing them, you can choose the best one for you. Here is a table that compares various types of fixed deposits:

Type of fixed deposits
Explanation
Cumulative Fixed Deposit
  • Interest is only available at the time of maturity
  • Users are not eligible for interval based interest
  • Higher interest rate
  • Suitable for people who are not looking for regular interest payment
  • FD tenure ranges from 1 year to 5 year
Non Cumulative Fixed Deposit
  • Interest is paid at regular intervals
  • FD tenure ranges from 1 to 5 years
  • In the case of a regular interest payout, one will be eligible for a lower amount at maturity
  • Suitable for people who require a regular source of income in the form of interest.
Bank deposits
  • Offered by banks to customers with saving accounts
  • Interest rates are lower than those offered by non-banking financial institutions
Company deposits
  • Offered by NBFCs with a higher rate of interest
  • For companies with a good credit rating
Senior citizen FD
  • For people over the age of 60
  • Offers higher rate of interest as compared to other FDs
  • Flexible tenure
NRIs FDs
  • NRIs, OCIs, and PIOs with NRO accounts are eligible
  • Higher interest rate when compared to traditional savings accounts
  • Fixed tenure
  • Payment mode- NEFT/RTGS from NRO bank account
Regular FDs
  • Regular form of investment
  • The amount can be invested for a specific time period by the user
  • A fixed rate of interest is provided
  • High interest rate
Tax saving FDs
  • Offered by a major number of banks
  • Annual tax exemption of up to Rs. 1.5 lakh
  • Lock in period of 5 years, before that, the amount cannot be withdrawn
  • One time lump sum amount deposit
Standard FDs
  • Fixed tenure
  • Predetermined rate of interest
  • Tenure starts from 7 days to 10 years
  • Higher interest rates as compared to saving account

Documents Required for Fixed Deposit

To open a fixed deposit account with a bank, you must provide the following documents:

  • A photocopy of a government-issued identification card, such as a PAN card, passport, or voter ID card
  • A completed and signed application form and a passport-sized photograph
  • Proof of residence, such as an electricity or telephone bill, or a photocopy of a passport
  • Note that original documents may be required for verification. Paytm Payments Bank allows savings account holders to open fixed deposits with just a few clicks, without any extra documentation. To open a savings account with Paytm Payments Bank, users need to complete their KYC, which can be done over a video call with a Paytm agent or by visiting a nearby KYC centre.

Read More: Documents Required for Fixed Deposits

Who can Opt for Fixed Deposit?

If you want to open a fixed deposit in India, you must be one of the following:

  • Resident of India
  • NRI
  • Senior citizen
  • Minor
  • Owner of an individual or a joint venture
  • A Society
  • Own a sole proprietorship
  • Owner of a company

Who Should Invest in Fixed Deposit?

Fixed deposits are recommended as an investment option for the following personnel:

  • Fixed deposits are a good option for those who do not want to take on market risk.
  • If you have taxable income, an FD can be a way to save on taxes through investing.
  • Retired individuals who want a steady source of income can consider FD schemes.
  • Individuals who have a reasonable amount of money to invest, such as housekeepers, can compare various FD options and choose one that meets their needs.

How to Find the Right Fixed Deposit?

Though there are many factors to consider when selecting an FD option to invest in, there are a few basic things to consider before investing-

  • Compare the FD options offered by different banks to find the best one for you.
  • Decide whether you want to invest in cumulative or non-cumulative fixed deposits.
  • Check the credibility of the lender by looking at ratings provided by CRISIL and ICRA.
  • When choosing a bank to open an FD with, consider one that has good customer service and an easy onboarding process.

How to Open a FD Account?

There are two ways to open your FD account – Online and Offline

Online

Follow these simple steps to open an FD account online:

  • Log in to your bank’s online banking platform
  • Enter all of the required information and submit the form.
  • If you are opening an FD account with a bank you already have an account with, you may not need to complete the KYC process again as the bank already has your information on file.
  • If you are opening an FD with a new bank, make sure you have all of the necessary KYC documents and a passport-sized photograph ready.

Offline

To open an FD account offline, follow these steps:

  • Go to your bank’s branch and fill out the application form with all of the required information.
  • Submit the form to the appropriate official.
  • Deposit the necessary amount and obtain a receipt.
  • If you are opening an FD account with a new bank, speak with a banking representative who can guide you through the process. In addition, make sure to bring all of the necessary KYC documents and a passport-sized photograph to complete the FD account process.

Fixed Deposits with Paytm

Paytm Payments Bank, in partnership with Induslnd, offers the option to open fixed deposit accounts with a range of benefits for users. Opening a savings account with Paytm Payments Bank is easy. Simply open the Paytm mobile app, select ‘Paytm Bank,’ and follow the on-screen instructions. Your account will be created within a few minutes.

You might be wondering why you should open a fixed deposit with Paytm. Here’s why!

  • Paytm offers higher interest rates on fixed deposits compared to many other banks in India: 6% for regular fixed deposits and 6.5% for senior citizen fixed deposits.
  • Withdrawing funds from a fixed deposit before its maturity date incurs no penalty.
  • Paytm allows for partial withdrawals from fixed deposits.
  • A fixed deposit with Paytm can be started with a minimum of Rs 100.
  • Paytm offers the option of automatically creating a fixed deposit when the balance in your Paytm savings account exceeds a user-specified limit.
  • Fixed deposits with Paytm can be created and dissolved at any time, from any location, with just a single click.

There shouldn’t be any more reasons for you to look any further when it comes to creating a fixed deposit for yourself. Paytm Payments Bank fixed deposits have the answer to all your concerns!

FAQs

When will I receive my FD interest?

The interest you earn on your fixed deposit (FD) depends on the frequency you have selected for the interest to be paid. This can be monthly, quarterly, or annually. If you choose to reinvest the maturity amount, you may be eligible for compound interest, which is added to the principal amount and then paid into your savings account when the FD matures. With Paytm Payments Bank, the duration of the FD will be calculated automatically, and the interest will be paid accordingly.

What exactly is a Flexi fixed deposit?

A Flexi fixed deposit combines features of a fixed deposit and a savings or recurring account. It offers higher interest rates and greater flexibility and convenience, while still providing liquidity. The name “Flexi fixed deposit” reflects this hybrid nature.

Can I withdraw the FD amount before maturity?

Paytm Payments Bank does not charge a penalty for withdrawing funds from a fixed deposit (FD) before the maturity date. If you have an urgent need for funds, you can easily withdraw from your FD account through a few simple steps, without incurring any penalties. Keep in mind that other banks may have different policies, and it is always a good idea to check the terms and conditions of your FD account before making any changes.

Are Fixed deposit investments safe?

Fixed deposits are generally considered a safe investment option offered by banks and other financial institutions. They are not affected by market conditions or fluctuations in interest rates. However, it is important to carefully consider the credibility and reputation of the issuer before investing in a FD. Look for ratings from organizations such as ICRA or CRISIL, research the issuer’s market reputation, financial status, customer service, and other relevant factors. This can help you make an informed decision and choose a trustworthy issuer for your FD investment.

Can I get a loan against FD?

Banks allow individuals to use the funds from their fixed deposit accounts without cancelling the deposits. This is known as a loan against FD. Here are some things to keep in mind about this service:
  • It is possible to take out a loan against a fixed deposit (FD) from the same bank where the FD is held.
  • Most banks offer loans that are equal to 90% of the FD’s value.
  • A loan against an FD can be a good option for those with a low credit score or CIBIL rating. Making timely payments on the loan can also help improve the borrower’s credit rating.
  • The loan term should be within the FD’s maturity period.
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