Fixed Deposit Account

People with little knowledge of term deposits often ask: what is a fixed deposit account? A fixed deposit account is a risk-free financial instrument provided by banks and non-banking financial companies. An ideal method to invest your money for a period of time, depending on your preference and high-interest rates. The interest rates are not affected by the fluctuations in the market; however, withdrawing premature fixed deposits might have penalties. Fixed deposits could stretch from days to years with varying interest rates depending on the period. It facilitates guaranteed return on maturity and higher interest rates than a savings account. 

Fixed Deposit Account Meaning

After understanding what a fixed deposit account is, let us know its meaning. Fixed deposits are a kind of term deposit. They may or may not require you to open a separate account. The interest rates vary from 2.5 % to 7 %, depending on the bank’s tenure. Fixed deposit account meaning holds value because no market fluctuations affect the fixed rates once the FD gets matured. Deposit insurance guarantees corporations cover the fixed deposits; hence they are safer than post office schemes. In the case of simple FDs, interest is credited to the customer’s savings account and reinvested in the case of compound FD’s. 

Types of Fixed Deposit

• Normal Fixed Deposit

Normal fixed deposits have a tenure of 7 days to 10 years. Interest is higher than a savings account.

• Tax Savings FD

Tax saving FDs allows tax exemption on a principal amount of 1.5 lakhs. It is a one time deposit, and one cannot withdraw the amount before five years.

• Cumulative FD

Cumulative fixed deposit offers compounded interest every quarter and are paid at the time of maturity and help in the growth of savings.

• Non Cumulative FD

Non-cumulative FD is great for pensioners as it is paid out monthly, quarterly, half-yearly or annually as per your choice. 

• FD for Senior Citizen

These fixed deposits are for people above 60 years of age. Senior citizens get special rates and flexible tenures.

Eligibility Criteria

The eligibility criteria to open an account for a fixed deposit in India are :

• Senior Citizens
• Minors
• Companies
• Partnership Firms
• Indian Resident
• NRI
• Societies or Clubs
• Sole Proprietorship

The documents required to open a fixed deposit are voter ID, Aadhar Card, Pan Card, Driving license, Ration Card, etc. Utility bills and bank statements are used as address proof for proof of identity.

Benefits and Features of Fixed Deposit Account

Fixed Deposits work the best for people who have a high amount of money that they do not wish to use immediately—a risk-free investment that provides protection and regular income flow.

Safe Investment

It is one of the safest means to invest your money without any risk of returns. It is one of the best features of fixed deposit account as it does not get affected by market fluctuations. An assured sum of money is guaranteed at the time of maturity.

Higher Interest Rates

The interest rate in the case of a fixed deposit is higher than the savings account. 

Flexible

Fixed deposit tenures can be highly flexible; therefore, one can apply based on personal requirements. If someone plans a wedding in 2 years or needs to buy a new house in 5 years, fixed deposits allow the person to do so. 

Liquidity

A fixed deposit is a liquid that can be easily converted into cash. One can withdraw the money whenever the need arises.

Tax Exemption

Tax savings fixed deposit comes under section 80C of the Income Tax Act, 1961. The interest is taxable, but one can claim a tax deduction of Rs 1,50,000. 

Conclusion

Compare the fixed deposit interest rates of different banks, check the lender’s credibility, choose the type of fixed deposits you want, a bank that offers excellent customer service. A backup for your emergencies, fixed deposits helps to reduce the tax liabilities. FD’s are liquid and can easily convert into cash. Fixed deposits are a smart financial move independent of market movement.