Understanding Fixed Deposits- Features, Benefits, Eligibility Criteria

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

Fixed deposits, which have recently gained popularity as an entirely safe and secure investment option, are very popular among new investors. While opening a fixed deposit is almost as simple as it gets, you should be aware of a few key factors before doing so.

Here’s everything you need to know about fixed deposits, including their features, benefits, eligibility requirements, and types.

What is a Fixed Deposit?

A fixed deposit, also known as a ‘term deposit’ or a ‘time deposit,’ is a type of investment instrument offered by banks and non-banking financial institutions (NBFC). It is the safest investment instrument among many others because it allows users to deposit a lump sum amount with the financial institution for a specific time period. In addition, FD provides users with a plethora of other features such as-

  • You can earn interest on the deposited amount for the predetermined tenure, based on the interest rate that was previously locked in
  • Once created, the interest rate is unaffected by changes in the market or interest rates.
  • You can earn interest either on a regular basis or when your FD matures
  • A fixed deposit amount cannot be withdrawn before the maturity date, and if someone does want to withdraw the amount, he or she must pay a penalty

Key Features of Fixed Deposits

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

  • The amount for which you want to create a fixed deposit should be decided before creating the deposit. Any additional funds must be deposited in a new account
  • In comparison to most investment options, fixed deposit holders are given a higher rate of interest
  • The returns on deposit never get fluctuated by the market
  • FD amount cannot be withdrawn before the maturity date. The penalty must be paid in the event of an emergency withdrawal or a willful withdrawal of funds
  • Fixed deposits offer guaranteed returns
  • The depositor can earn interest monthly, quarterly, annually or after the maturity date
  • Fixed deposits have low liquidity as an investment option
  • A fixed deposit can be renewed
  • There is no upper limit to the amount that can be deposited in a fixed deposit account

Benefits of Fixed Deposit

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

Safe investment option

When compared to other investment options, FDs are regarded as one of the safest options available in the market. This investment instrument provides a fixed rate of interest that does not fluctuate with market conditions throughout the pre-decided tenure.

Assured rate of interest

The FD user receives a guaranteed rate of interest on the deposited fixed amount. Fixed deposit interest calculators are available on banks’ websites, allowing users to calculate the interest they will receive upon maturity.

Hassle-free investment

Having a savings account allows you to easily invest in fixed deposits by visiting a bank branch or investing online. After the maturity date of the FD, the amount can be renewed or credited to the account.

Compound interest

If you reinvest the amount of your matured FD, you will be eligible for compound interest. Compound interest in this context means that you will earn interest not only on the principal amount but also on the interest earned.

Tax Saving

A large number of banks in India offer tax-saving fixed deposit options to their customers, lowering the taxable amount to be paid.

Flexible Tenure

The term of a fixed deposit ranges from 7 days to 10 years. Investors can use FDs to meet their personal or business needs. If you want to take money out after 5 years, you can invest in a tax-saving FD with a 5-year lock period.

Loan against FD

A person can finance himself using the fixed deposit amount rather than taking out an unsecured loan and paying a higher interest rate. Loans against fixed deposits have a lower interest rate than the applicable fixed deposit interest rate. Taking out a loan against a fixed deposit does not require the depositor to dissolve his or her fixed deposit.

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 depositsExplanation
Cumulative Fixed DepositInterest 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 DepositInterest 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 depositsOffered by banks to customers with saving accounts
Interest rates are lower than those offered by non-banking financial institutions
Company depositsOffered by NBFCs with a higher rate of interest
For companies with a good credit rating
Senior citizen FDFor people over the age of 60Offers higher rate of interest as compared to other FDs
Flexible tenure
NRIs FDsNRIs, 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 FDsRegular 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 FDsOffered 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 FDsFixed 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 your PAN card, passport, voter ID card, or any other government-issued identification card
  • Application form that has been duly filled out and signed, as well as a passport-sized photograph
  • Proof of residence, such as an electricity bill, a telephone bill, or a photocopy of one’s passport
  • Original documents are required for verification.

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 an option for those who do not want to take market risk
  • If you have taxable income, an FD can be a tax-saving investment vehicle
  • A retired person who wants a steady source of income can apply for FD schemes
  • A user who works as a housekeeper and has a reasonable amount of money to invest can compare various FD and invest in one

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-

  • Make sure to compare all of the FD options provided by various banks
  • Determine whether you want to invest in cumulative or non-cumulative fixed deposits
  • Examine the lender’s credibility using the ratings provided by CRISIL and ICRA
  • Finally, when looking for a bank to open an FD, look for one that provides good customer service and a simple onboarding process

How to Open a Fixed Deposit 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
  • Visit the portal’s fixed deposit section
  • Fill in all of the required information and press the ‘Submit’ button
  • If you open an FD account with an existing bank, you will not be asked to complete the KYC process again because the bank already has your information
  • Alternatively, if you are opening a new FD with a new bank, make sure you have all of the necessary KYC documents and a passport-sized photograph available

Offline

To open an FD account offline, follow these steps:

  • Visit your bank’s branch and fill out the application form with all of the necessary information
  • Once completed, submit the form to the appropriate official
  • Deposit the required amount and obtain the deposit receipt
  • If you are opening an FD account with a new bank, connect with a banking staff who can walk you through the process. Apart from that, bring all of the KYC documents and a passport-sized photograph to complete the FD account process

Fixed Deposits with Paytm

Paytm Payments Bank, in collaboration with Induslnd, provides the option to create fixed deposits with a variety of benefits for users. It is as simple as it sounds to open a savings account with Paytm Payments Bank. To create an account, 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 pays 5.5 % on regular fixed deposits and 6 % on senior citizens’ FDs, which is higher than many other banks in the country.
  • There is no penalty for withdrawing funds from a fixed deposit before its maturity date.
  • Paytm allows for partial withdrawals from fixed deposits.
  • A fixed deposit of Rs 100 is all that is required to start one.
  • Paytm provides the option of auto-creating fixed deposits when the amount in your Paytm savings account exceeds a user-specified limit.
  • Fixed deposits with Paytm can be created and/or dissolved at any time, from any location, and with only 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?
Your FD interest depends upon what you have chosen at the time of investing in FD. It can be on a monthly basis, quarterly or annually. In between, if you choose to reinvest the amount after maturity, in that case, you will be eligible for compound interest that will be added to the principal amount. This amount will further be added to your savings account once the FD gets matured.
What exactly is a Flexi fixed deposit?
Flexi fixed deposit is a hybrid of a fixed deposit and a savings/recurring account. This type of FD provides users with flexibility and convenience while also providing higher interest rates and liquidity. If you are a new customer, you need to complete your KYC and if you are already an existing customer, verify the details, enter what else is required to fill and get done. Meanwhile, you can open your Paytm FD account by following a few simple steps and avail of the innumerable benefits, including a high interest rate.
Can I open my FD online?
Yes, you can open your FD online by logging into the bank’s online portal. Look for the FD section, follow the instructions provided, fill in all the required details, deposit the amount and submit your application. If you are a new customer, you need to complete your KYC and open your savings account with Paytm Payments Bank. Once your account is open, fixed deposits can be created in a few simple steps via Paytm App and you can avail the innumerable benefits, including a high interest rate.
Can I withdraw the FD amount before maturity?
Yes, in case of an emergency fund requirement, you can withdraw the amount after paying a penalty.
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