Types of Fixed Deposit

Fixed Deposits are the type of term deposit accounts that let you earn interest by depositing an amount for a certain period of time. There are different types of fixed deposits available by almost all the major banks in India. A fixed deposit is the best fit for risk-averse investors which lets them earn interest on the deposited amount over a period of time. The moment you put your money, it gets locked and you can avail the interest amount upon maturity. 

Overview of Fixed Deposits

 Types of Fixed Deposits in India

There are different types of fixed deposits offered by various banks in India. However, the two major categories of FDs are cumulative and non-cumulative. In cumulative deposits, the interest is not paid during the currency of the deposit and is paid along with the principal amount upon maturity. Whereas, in the case of a non-cumulative deposit, interest is paid along with the currency of the deposit. However, the rate of interest is the same in both the schemes. 

In non-cumulative deposits, interest is usually paid on a quarterly basis; if paid on a monthly basis, it is at a discounted rate. Furthermore, you can avail monthly, quarterly, half-yearly or yearly interest payout as per the convenience. Interest is compounded quarterly in case of cumulative deposit.

Talking about the common types of fixed deposit accounts available in India, banks provide different fixed deposit plans. Let’s have a look at the FD types right away:

Standard Fixed Deposits

It is the standard FD scheme available at all banks. Some of the features are: 

• Money is deposited for a fixed tenure
• The rate of interest is pre-determined by the bank
• Tenure can range from 7 days to 10 years
• Interest rates are higher than a savings account 

Tax Saving Fixed Deposits

As the name implies, these deposits are instrumental in saving tax and are available in almost all the banks.

• One can get a tax exemption up to Rs. 1.5 lakh in a year
• These FDs have a lock-in period of 5 years during which you cannot withdraw the amount
• Only one-time lumpsum deposits are allowed

Special Fixed Deposits

Like standard FDs, these funds are also invested for specific time periods. The only difference is if you don't withdraw the money for the specified period, you will earn higher interest on it than Standard FDs.

Regular Income Fixed Deposits

If you have a limited income and depend on the interest from bank deposits for your monthly expenses, this type of FD is the best fit for you. You can opt for either monthly or quarterly interest payout.

Senior Citizen Fixed Deposit

The senior citizens’ fixed deposit scheme allows citizens with age more than 60 years to open an FD account.

• These FD schemes provide an additional interest rate of around 0.50% over the regular interest rates
• Tenures are also flexible under this scheme

Flexi Fixed Deposit

These are the type of FDs that are linked to your savings account.

• You can create an FD with an initial deposit of your choice and link it to your savings account.
• You can also limit your savings account and any excess will be transferred to the FD.

Corporate and Other Fixed Deposits

The deposit made by investors with companies for a fixed tenure and prescribed rate of interest is called Corporate/ Company Fixed Deposit. Financial institutions and Non-Banking Finance Companies (NBFCs) also offer this type of deposits. 

Corporate Fixed Deposit schemes offer higher returns on your investment, but choosing the right company is imperative. If you choose a good Company FD scheme, you will generally earn more on your investment than bank FDs as these schemes offer the highest interest rate on FD. You can check the credit ratings of the company you want to invest from reputed credit rating agencies like CRISIL. These deposits are unsecured, i.e., if the company defaults, the investor cannot sell the documents to recover his/her investment, thus making it a bit risky investment option.

Types of Fixed Deposits for NRIs 

There are two different types of fixed deposit accounts for Non-resident Indians: Non-resident External (NRE) and Non-resident Ordinary (NRO) accounts. 

• NRE fixed Deposits 

NRE FDs are best suited for those who earn in foreign currency and who wishes to get the amount converted to Indian currency value. The interesting thing about an NRE FD account is that the interest earned on the deposit is tax-free and one can get both principal and the interest amount. The only downside is that the money deposited can be affected as per the currency rate fluctuations.

• NRO Fixed Deposits

The interest income earned through NRO fixed deposit is taxable at 30% based on the Income Tax Act, 1961. Not only the interest earned can be completely repatriated, but also the principal amount within a certain bracket or set limit. However, the advantage here is that in the case of NRO fixed deposits, unlike NRE FDs, here are no risks for exchange rate fluctuation. You can deposit money in foreign or Indian currency in your NRO account. So, if you stay abroad and your total income also entails earnings from India, NRO FDs can be the best fit to manage your funds within India.

Benefits of Fixed Deposits

Fixed Deposits are the best fit for risk-averse investors and which is the reason why fixed deposits have always been one of the most preferred choices in India.  However, there are various other key benefits of FDs explain below.

• Guaranteed Returns: Fixed deposit (FD) accounts provide assured returns on your investment as the banks are governed by RBI. Hence, these investments are relatively risk-free when compared to other forms of investments; moreover, investors receive a fixed rate of interest on the amount invested. 

• Higher Interest Rates: Fixed Deposit schemes offer a comparatively higher rate of interest rate than other forms of traditional investments such as savings accounts and recurring deposits. 
• Tax Benefit: Investors can opt for tax saver fixed deposits to avail tax benefits up to Rs. 1.5 lakh, as prescribed under Section 80C of the Income Tax Act 1961. However, most FDs providing tax saver benefits have a lock-in period between 3 to 5 years. 

• FD at your fingertips: Depositors can open an FD account online within a few minutes. If you are a customer of the bank you want to open your account with, you can just log in with your net banking or mobile banking and apply for the preferred FD. You can also estimate the returns of FD schemes using an online FD calculator and choose the scheme that offers the best interest rate with minimum documentation.