Confused about which type of fixed deposit you should invest in? Here’s everything you need to know about the various types of fixed deposits.
In India, fixed deposits (FDs) are considered to be one of the most reliable long-term investment plans.
FDs are a type of investment option that banks and financial institutions offer that promises fixed interest. You can go to your nearest banks to avail of various types of fixed deposits according to your needs.
FDs offer guaranteed returns and carry minimal risk. This means that your money will be safe even during times of crisis. However, to ensure that you’re getting the best investment, it’s critical to understand the function and uses of different types of fixed deposits.
In this blog, we’ll try to understand what fixed deposits are and the different types of fixed deposits so that you can choose the right FD plan that meets your requirements. So, let’s dive into what fixed deposits are and their various types.
What are fixed deposits?
A fixed deposit is a monetary scheme provided by banks where you can store a lump sum amount of money and yield a fixed interest rate over a specific period.
Depending on the plan chosen and the bank, this period can vary from a few weeks to 10 years. However, you will have to wait for the fixed deposit plan to mature before withdrawing any money, i.e., you won’t be able to withdraw any money from your account until the fixed deposit term is over.
Nevertheless, if you need access to your funds, you can opt for premature withdrawals. However, note that you will be subject to withdrawal penalties.
Various types of fixed deposits
Understanding different fixed deposit plans can be beneficial for reaping the maximum benefits from your fixed deposit plan. Let’s discuss the various types of fixed deposit plans below:
1. Bank deposits
Banks generally offer this type of fixed deposit plan on their savings accounts. However, the con of normal bank deposits is that they have very low-interest rates.
2. Tax-saving fixed deposits
As the name suggests, this type of FD scheme offers tax benefits. Under Section 80C of the Income Tax Act, you are allowed to claim deductions up to Rs. 1.5 lakh.
Most banking institutions offer this type of FD. However, you cannot withdraw any money from this for 5 years until the scheme ends.
3. Corporate fixed deposits
As the name suggests, corporate fixed deposits are generally deposited in a company for a fixed period with a predetermined interest rate.
Corporate fixed deposits may offer higher than average returns on deposits. However, it’s essential to check a company’s legitimacy before investing.
4. Cumulative fixed deposits
This fixed deposit type is more suitable for people who don’t want a regular interest repayment as the plan is valid for a tenure ranging anywhere between 1 year to 5 years.
By availing of this fixed deposit plan, you can avail higher interest rates from banks.
5. NRI fixed deposits
This fixed deposit type can only be availed by NRIs account holders. They can choose to deposit a sum of money, and interest will be generated on the account.
6. Non-cumulative fixed deposits
This type of fixed deposit is designed for people who want a stable source of income from their investments. Similar to its counterpart type, this FD type also has a tenure of 1 to 5 years.
However, choosing regular payouts can lessen the percentage of interest at maturity.
7. Senior citizen fixed deposits
Several specially curated fixed deposit plans offer fixed deposits to people over 60 years, i.e. senior citizens. These FDs offer extra benefits and a slightly higher interest rate than traditional FDs.
8. Flexi fixed deposits
This relatively modern type of fixed deposit combines the best features of savings accounts and fixed deposits. In this type, individuals can access higher rates of interest as well as liquidity, contrary to traditional FDs that are generally illiquid.
Things to remember before investing in a fixed deposit
Numerous investment plans are available, but arguably, none are as safe and streamlined as fixed deposits. However, it’s always better to research before investing in any options.
As an individual looking to invest in FDs, it is paramount that you understand its features and benefits. This can give you powerful insights into the instrument, which can help you choose the best-fixed deposit plan for yourself.
The flexible time period of the fixed deposit plan also makes it easier for you to focus on your financial goals while also investing simultaneously. Follow the below-mentioned precautionary steps to make sure you get the best-fixed deposit plans:
- Compare all of your fixed deposit plans
- Confirm interest rate, maturity date and investment amount
- Check if the bank you’re availing fixed deposits from provides a smooth process with good customer service.
Fixed deposits are a great investment option. They offer guaranteed returns in return for minimal risk. There are many types of fixed deposit types. You can choose your type depending on your preference and requirements. Remember to assess all kinds of fixed deposits before zeroing on one. Verify interest rates, tenure and other terms and conditions for hassle-free investing.