Fixed Deposits
What is a Fixed Deposit (FD)?
A Fixed Deposit (FD) is a traditional investment option offered by banks and financial institutions where individuals can park a lump sum amount for a fixed tenure at a predetermined interest rate. Considered one of the safest forms of investment in India, FDs offer guaranteed returns, making them a popular choice among conservative investors.
When you invest in a fixed deposit, your money earns interest at a fixed rate, which is set at the time of account opening and remains unchanged throughout the investment period—regardless of market fluctuations.
You can choose to receive the interest payouts at regular intervals—monthly, quarterly, half-yearly, or annually—or opt for cumulative returns where the interest is reinvested and paid out at maturity. A Fixed Deposit (FD) is a traditional investment option offered by banks and financial institutions where individuals can park a lump sum amount for a fixed tenure at a predetermined interest rate. Considered one of the safest forms of investment in India, FDs offer guaranteed returns, making them a popular choice among conservative investors.
When you invest in a fixed deposit, your money earns interest at a fixed rate, which is set at the time of account opening and remains unchanged throughout the investment period—regardless of market fluctuations.
You can choose to receive the interest payouts at regular intervals—monthly, quarterly, half-yearly, or annually—or opt for cumulative returns where the interest is reinvested and paid out at maturity.
How Does a Fixed Deposit Work?
When you open a Fixed Deposit account, you commit a specific sum of money for a chosen duration, typically ranging from 7 days to 10 years. The invested amount remains locked in for the full term, and premature withdrawals may attract penalties.
Key Factors that influence FD Returns:
At the end of the FD tenure, the principal amount along with the earned interest is either:
Features and Benefits of Fixed Deposits
Fixed Deposits offer multiple benefits, especially for risk-averse investors looking for stable and secure investment options:
Drawbacks of Fixed Deposits
While FDs are secure, they come with certain limitations:
Types of Fixed Deposits
There are several types of fixed deposits tailored to different investor needs:
Classification of Fixed Deposit
| Type of Fixed Deposit | Utility | Benefits | Ideal Age Group | Ideal Income Group | Risk Level | Liquidity | Tenure Range | Interest Payout Option | Tax Benefits |
|---|---|---|---|---|---|---|---|---|---|
| Regular Fixed Deposit | Safe investment with fixed returns over a specific period | Stable returns, flexible tenure | All age groups | All income groups | Low | Low (premature withdrawal penalty) | 7 days to 10 years | Cumulative or Non-Cumulative | No |
| Tax-Saver Fixed Deposit | Investment with tax benefits under Section 80C | Tax deduction up to ₹1.5 lakh per year | 25–60 years | Middle to high income (taxpayers) | Low | Very Low (5-year lock-in) | 5 years | Cumulative or Non-Cumulative | Yes (under Section 80C) |
| Senior Citizen Fixed Deposit | Higher interest FD tailored for seniors | Higher interest rate, stable income | 60+ years | Retired or pensioners | Low | Moderate | 7 days to 10 years | Cumulative or Non-Cumulative | Yes (TDS exemption under 80TTB) |
| Cumulative Fixed Deposit | Interest is compounded and paid at maturity | Higher compounding returns | 25–50 years | Salaried, self-employed | Low | Low | 6 months to 10 years | Cumulative | No |
| Non-Cumulative Fixed Deposit | Interest is paid out regularly | Regular income for monthly expenses | 50+ years | Retired or income-seeking | Low | Low to Moderate | 6 months to 10 years | Monthly, Quarterly, Annually | No |
| Flexi Fixed Deposit | Hybrid of savings and FD account | Liquidity + higher interest; auto-sweep | 18–60 years | Salaried, business professionals | Low | High |
While Fixed Deposits offer safety and guaranteed returns, mutual funds provide the potential for higher growth, especially over the long term. For investors with low risk tolerance, FDs can serve as a foundation of their investment portfolio. However, blending FDs with mutual funds can help achieve a balanced approach—ensuring both safety and growth.
