A Beginner's Guide to Fixed Deposits in India
This instrument allows you to earn interest on your idle funds for a set period of time.
Millions of Indians turn to Fixed Deposits (FDs) as a way to earn a steady return on their investments.
But what exactly are Fixed Deposits, and how do they work? In this beginner's guide, we will answer these questions and take a closer look at the ins and outs of Fixed Deposits while exploring how they can help you achieve your financial goals.
What are Fixed Deposits?
Fixed Deposits, also known as Term Deposits or time deposits, are a type of investment instrument that allows you to deposit a chunk of money for a set period of time, typically ranging from a few months to several years.
In exchange, you earn a predetermined interest rate, which is usually higher than a regular savings account.
By providing a safe and flexible way to invest, Fixed Deposits are an appealing option for those who aim to grow their wealth without taking a high risk.
How do Fixed Deposits work?
When you invest in a Fixed Deposit, you deposit a lump sum of money for a predetermined period. Meanwhile, the bank or financial institution pays you interest at the applicable rate.
The interest earned on your Fixed Deposit is calculated on a quarterly or annual basis and usually stays locked in for compounding. This allows you to earn interest on interest and grow your returns exponentially over time.
When the FD tenure ends, you can withdraw your initial deposit plus the interest you have earned.
Types of Fixed Deposits in India
- Digital Fixed Deposit: This type of Fixed Deposit can be opened online without any Savings Account.
- Tax Saver Fixed Deposit: This Fixed Deposit offers tax benefits and has a fixed tenure of five years.
- Fixed Deposit Plus: It offers a higher rate of interest compared to regular FDs.
- Auto Fixed Deposit: This Fixed Deposit type links your existing Savings Account to a Fixed Deposit scheme and automatically transfers money to the deposit when the Savings Account balance crosses a specified amount.
- Senior Citizen Fixed Deposit:Designed specifically for senior citizens, this FD type provided higher interest rates, typically 0.5 to 0.75% more than regular FDs.
Things to consider before investing in Fixed Deposits
- Interest rate: Research and compare Fixed Deposit interest rates across various banks to get the best deal.
- Tenure: Select a tenure that matches your financial goals and liquidity needs. For example- If you need to save for retirement or your child’s education, consider a longer tenure of 5 years or more.
- Tax implications: Understand the tax liabilities associated with Fixed Deposits to avoid penalties. Notably, the interest earned on FDs comes under the taxable income and is subject to TDS if it goes above a certain threshold.
- Deposit requirements: Check the minimum Fixed Deposit requirement as it differs among banks.
- Eligibility criteria: Ensure that you meet the eligibility criteria which typically require you to be a resident of India and meet the age, income and documentation requirements specified by the bank.
Wrapping up
By understanding Fixed Deposits, you can make an informed decision, utilise the potential of your savings and secure your financial future. To get started, focus on key aspects, such as interest rates, tenure, tax implications and eligibility criteria.
With low risk and better reward benefits, FDs are perfect for anyone looking to grow their savings, achieve their financial goals or earn some extra income.
Disclaimer: No Business Standard Journalist was involved in creation of this content
Topics : Fixed Deposit
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First Published: Feb 19 2025 | 9:50 AM IST
