June 12, 2024

Types Of Fixed Deposits: Choose a suitable Fixed Deposit Account

fixed deposit interest rate

A fixed deposit is considered one of the safest investment instruments, as it is free from market fluctuations. This traditional investment option has continued to remain a popular choice among potential investors as they receive assured returns and a high rate of interest against the amount invested. In this kind of investment, the depositor gets the opportunity to invest his lump-sum savings against a fixed rate of interest for a fixed period of time. Once the amount is fixed, it compounds annually throughout the tenure. When the amount matures, the depositor receives a lump sum amount along with the accumulated interest component. 

However, it is important to remember that, once the amount is fixed, it cannot be withdrawn that easily. However, if you wish to make a premature withdrawal, you might not receive the entire amount that you would have received on maturity. Moreover, you may even have to pay a penalty of 1% to 2% for partial or premature withdrawal. However, keeping this aside, investing in a fixed deposit is a wise choice for individuals who want to park their hard-earned savings securely. Moreover, all the leading banks and NBFCs of the country offer this investment option to their customers. 

Types of fixed deposit

There are various types of fixed deposits in which an individual can invest. Below, we have laid down a list of those. Keep reading to find out which one matches your investment interest. 

Standard fixed deposit

The standard fixed deposit account is the most basic and traditional kind of FD account. Here, the interest rate and tenure stay fixed until the amount matures. The tenure can vary from 7 days to 10 years. It is one of the most common types of fixed deposit selected by potential investors.

Special fixed deposit

The special fixed deposit is considered ‘special’ as the tenure is fixed for a special time period such as 390 days, 290 and so on. The special fixed deposit provides a higher rate of interest than the standard fixed deposit. This has made it a popular choice among investors. 

Tax saving fixed deposit

As per Section 80C of the Income Tax Act 1961, the tax-saving fixed deposit enables an individual to claim for tax deductions when he files for his income tax returns. However, in this kind of fixed deposit, the depositor can only claim tax deductions on the principal amount but not on the interest component. Moreover, the minimum lock-in period in this kind of fixed deposit is five years.

Floating fixed deposit

Only a few financial institutions in India provide this offer. The rates of interest are revised yearly or quarterly according to the RBI guidelines. The investors can take the benefit of the fluctuating

rates of interest by applying it to this kind of fixed deposit. 

Cumulative fixed deposit

In this kind of fixed deposit, the interest component is accumulated until the tenure ends. Here the principal amount compounds annually and hence increases annually and gets added with the yearly interest component earned. This is a good investment option for earning individuals who want to create a corpus of funds. The rate of interest is quite high in the case of a cumulative FD.

Non-cumulative fixed deposit

In this kind of fixed deposit, the interest component earned against the amount is paid to the depositor at regular intervals. Thus, the interest earned does not get collected or cumulated and is given away to the depositor at a stipulated time. This can be either yearly quarterly or monthly. This kind of fixed deposit is better for retired individuals who do not have any steady source of income. However, a non-cumulative fixed deposit offers quite low the interest rate on FD.

Flexi fixed deposit

A Flexi fixed deposit is an emerging kind of fixed deposit offered by various leading banks in the country. This kind of fixed deposit is an amalgamation of demand deposit and fixed deposit. One of the perks of the Flexi fixed deposit is that the investors get the liberty to liquidate funds of both the current and savings account and as well as the returns earned on the fixed deposit account. 

Before considering any of these options, study them thoroughly. Look at the rate of interest and tenure that each one of them is offering and only then make a decision. Lastly, read the fine print carefully before signing the application form.