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- A fixed deposit amount cannot be withdrawn before the maturity date, and if someone does want to withdraw the amount, he or she must pay a penalty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- FD amount cannot be withdrawn before the maturity date.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 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 60Offers 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 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!
