Fixed Deposit allows you to invest your funds for a fixed term and offers returns at fixed interest rates depending on the maturity period. From tenure range from seven days to 20 years, fixed deposits are considered the best long-term investment with minimum risk.
In a fixed deposit, you can put a certain amount of money for a specific tenure, be it six months or five years, your money gets locked and you can avail the principal amount with interest amount after maturity.
However, if you withdraw the money before maturity, you will not get any interest amount, or you will receive comparatively less interest amount.
Types of fixed deposits:
Bank deposits
Banks usually offer their customers, who have saving accounts, to open a fixed deposit account. However, the interest rates on FDs offered by banks are usually lower than those provided by Non-Banking Finance Companies (NBFCs).
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Company Deposits
NBFCs offer company or corporate FDs with higher interest rates. However, before making an investment, always make sure the company has enough credit worthiness.
Cumulative fixed deposits
When you invest in a cumulative FD, the earned interest is only be credited to you at the time of maturity, and not the interests at regular intervals. Although, cumulative FDs have higher interest rates and the return is more at the time of maturity.
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Non-cumulative fixed deposits
When you invest in a non–cumulative FDs, the financial institution will pay you the interest earned on the principal amount at regular intervals. But, if the interest payout frequency is higher, the maturity amount decreases at the time of maturity.
Tax-saving fixed deposits
These FDs come with a lock-in period of up to five years but under these, you can claim a tax deduction for income up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
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Senior citizen fixed deposits
For people above 60 years of age, a special type of FD is in place, namely Senior Citizen Fixed Deposits. In these FDs, the interest rates are higher. Senior citizens can invest in tenures from one year to five years at an interest rate of up to 8.95%.
Fixed deposits for NRIs
FD schemes for NRIs have higher interest rates than traditional saving schemes. An NRI can invest in this type of FD from their NRO account.
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Standard/Regular fixed deposits
Most common of all FDs, you can invest your money for a certain period of time at a predetermined rate of interest. This is the most convenient type of investment, secures the principal amount, and offers high interest rate.