A fixed deposit (FD) is one of the most popular and safest instruments offered by banks and financial institutions, in which an individual invests a lump-sum amount for a particular period of time at a fixed rate of interest.
Backed by trusted institutions like HDFC Bank, State Bank of India, and ICICI Bank, suitable for those who want safety, stability, and fixed returns.
What is a fixed deposit (FD)?
In a world full of fluctuating investments, many investors seek stable and safe returns without risking their hard-earned money in the stock market. A Fixed deposit (FD) stands out as one of the most credible and stable options, offering secure and predetermined returns. Unlike market-linked investment options, FDs provide guaranteed returns, which make them a risk-free choice.
How does FD work? Step-by-step
- Deposit Amount: You invest a fixed amount, say 1,00,000 or 2,00,000, with a bank.
- Tenure: Then you have to select the time period ranging from 7 days to 365 days. (depends on the bank)
- Rate of interest: After selecting the tenure, banks offer a fixed rate of interest on the deposited amount.
- Interest earned: Interest gets calculated and added to your deposit.
- Maturity: At the end, you will receive your principle+ interest earned.
Calculate FD Returns:
The FD calculator uses the concept of compound interest to calculate returns. Here is the calculator below:
Types of Fixed Deposits FD:
- Regular Fixed Deposit: It is a standard type of fixed deposit in which an investor invests for a particular period of time at a fixed rate of interest. It is suitable for investors looking for stable and secure returns.
- Senior Citizen FD: It is exclusively available for people aged 60 years and above. They get a higher rate of interest (depends on the bank).
- Tax-Saving FD: This type of FD comes with a 5-year lock-in period, and premature withdrawals are not allowed.
- Flexi-Fixed Deposit: In a flexi-fixed deposit, an excessive balance in your bank account gets converted into an FD automatically.
- Cumulative Fixed-Deposit: In this type, Interest is accumulated and gets reinvested, and the investor gets maturity at the end of the tenure.
- Non-Cumulative Fixed Deposit: In a non-cumulative FD, interest is paid at regular intervals (Monthly, quarterly, half-yearly, yearly)selected by the investor at the time of investment.
Benefits of Fixed Deposit:
1. Guaranteed Maturity: The biggest advantage of FDs is it comes with guaranteed returns. The rate of interest is fixed at the time of inception of the FD, and the investor actually knows what he is going to get at the end.
2. Flexible duration: FD offers a flexible tenure, which helps the investor to plan according to their goal.
3. Capital protection: FDs help protect investors’ hard-earned capital from unfortunate losses as FDs are considered a low-risk investment option, especially with reputed banks like State Bank of India, ICICI Bank, AXIS Bank, and HDFC Bank.
4. Flexible Payout options: The investor has the option to choose how he wants the payout to be credited, such as monthly, quarterly, half-yearly or yearly.
5. Loan against FD: The investor can avail a loan against his fixed deposit without breaking it, which is usually 80-90% of the deposited amount.
Taxation on Fixed Deposit:
- The interest earned on a fixed deposit is taxable under Section 194A of the Income Tax Act.
- TDS is deducted if interest on FD exceeds ₹40,000.
Conclusion:
Concluding this, Fixed deposits are considered one of the safest options available for investment. With low-risk and guaranteed returns, FDs are suitable for both long-term and short-term financial goals. Whether you are a beginner or conservative investor, FDs can play a crucial role in your financial planning.