Types of Fixed Deposit in 2023 – Know Different Types of FDs and How to Choose
Fixed deposits (FDs) are a popular investment option offered by banks and other financial institutions, where an individual deposits a fixed amount of money for a predetermined period of time at a fixed interest rate. Banks provide customers with multiple fixed deposit options that cater to their financial needs and budget.
These types of fixed deposits differ in their features, benefits, limitations, and flexibility for premature or mature withdrawals. It’s important for customers to compare and choose the appropriate fixed deposit option that fits their individual financial goals and situation.
In this blog, we will discuss the different types of fixed deposits to help you understand which one is best for you.
Types of Fixed Deposit
The different types of fixed deposits are as follows :
1. Tax Saving Fixed Deposits
Tax saving fixed deposit is a type of deposit scheme that allows you to claim tax deduction benefits up to Rs.1.5 lakh under Section 80C of the IT Act. The lock-in period is 5 years.
2. Standard Fixed Deposits
A standard fixed deposit is a popular investment option where a person invests a fixed amount of money for a set period of time and earns interest at a fixed rate. The deposited amount is inaccessible for the predetermined tenure, and the interest earned is also fixed.
3. Corporate Fixed Deposits
Private financial institutions and non-banking financial companies (NBFCs) offer guaranteed savings options called Corporate FDs. These are similar to bank FDs and allow individuals to invest a lump sum amount for a chosen investment period at a predetermined interest rate. Corporate FDs are rated by credit agencies such as ICRA and CRISIL, and generally offer higher interest rates compared to standard bank FDs.
4. Special Fixed Deposits
Special fixed deposits work similarly to standard fixed deposits. However, the only difference is if you don’t withdraw the money for the specified period, you will earn higher interest on it than standard FD.
5. Senior Citizen Fixed Deposits
Individuals who are over the age of 60 are eligible to open a fixed deposit account under the senior citizens’ fixed deposit scheme. The senior citizens’ fixed deposit scheme offers an extra interest rate of 0.50% on top of the standard interest rate provided on the fixed deposit.
6. Flexi Fixed Deposits
Flexi fixed deposits combine the advantages of both savings accounts and fixed deposits, providing the convenience and flexibility of both. These deposits offer higher interest rates typically associated with FDs while also offering the flexibility and liquidity of a savings account.
7. Regular Income Fixed Deposits
A regular income fixed deposit where the interest earned on the deposit is paid out to the depositor at regular intervals, usually monthly or quarterly, as a source of steady income. This type of FD is suitable for individuals who require a fixed and regular income stream from their investments.
8. NRI Fixed Deposits
Banks and NBFCs provide three distinct fixed deposit options to non-resident Indians – NRO, NRE, and FCNR FDs. These options differ in terms of deposit currency and taxation regulations.
1. NRE
This is a type of bank account for NRIs to deposit and earn high-interest rates on their earnings. Only Indian currency is accepted, and the tenure and interest rates differ from a regular savings account.
2. NRO
NRO deposit is another option for NRIs to deposit their money. The currency accepted is only Indian rupees, and the interest rates are the same as domestic deposits. NRO deposits are taxable, and NRIs who earn income in India must open an NRO deposit account.
3. FCNR FDs
FCNR deposit is a type of investment option that enables investors to deposit their money in various foreign currencies, which are globally accepted. Popular currencies accepted by most major banks include the British Pound, US Dollar, Euro, Canadian Dollar, Japanese Yen, and Singapore Dollar.
9. Cumulative Fixed Deposits
If you choose a cumulative deposit type for your fixed deposit, you will only receive the interest earned on your investment when it matures. This means that even though you earn interest on your principal amount periodically, you will not receive any payouts until the end of the investment period.
10. Non-cumulative Fixed Deposits
Non-cumulative Fixed Deposits are a type of fixed deposit where the interest earned is paid out at regular intervals, usually monthly or quarterly, instead of being added to the principal amount and earning interest on that total amount
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How to Choose the Right Fixed Deposit?
1. Interest Rate
Look for a bank that offers a high-interest rate, which may vary depending on the tenure and age of the investor.
2. Loan Facility
Check if the FD account provides a loan facility and select the one that offers the highest value against your deposit.
3. Credibility of the Lender
Verify the credibility of the bank where you plan to invest by examining its CRISIL or ICRA ratings. Choose a bank with high ratings.
4. Premature Withdrawals
In case you need to withdraw your money before the FD tenure ends, select a bank with a low penalty on premature withdrawals, which typically reduces the interest rate by 0.5% to 1%.
Calculate Your FD Interest Rate
Total Investment
Rate of Interest (P.a)
%
Time Period (Years)
Invested Amount
0
Est. Returns
Total Value
1. Compound Interest Method
A = P (1+r/n) ^ (n * t)
Where,
- A = Maturity Amount
- P = principal amount invested
- r = Rate of Interest (in decimals)
- n = number of compounding in a year
- t = number of years
2. Simple Interest Method
Simple Interest = (P * R * T)/100
Where,
- P = principal amount invested
- R = Rate of interest (%)
- T = Tenure
Final Word
As we mentioned above, there are different types of fd that one can invest with and individuals can choose based on their investment goals, risk appetite, and financial needs. It is essential to consider all the factors before making an investment decision to ensure that the investment aligns with their financial objectives.
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FAQ
A Fixed Deposit (FD) is a financial investment product offered by banks and financial institutions. In a fixed deposit, you deposit a certain amount of money for a fixed period of time, usually ranging from a 5-10 years and earn a fixed rate of interest on that deposit.
Read More on Income Tax Act
