Types of Fixed Deposit
Fixed deposits are one of the best financial tools to get guaranteed returns without any risk involved. Fixed deposits can be categorized into 6 types in India such as Cumulative FDs, Senior-citizen FDs, Tax-savings fixed deposits, and many more. An investor can choose any of the types based on their requirements and features they want their fixed deposit to have.
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Types of Fixed Deposits
Fixed deposits is one of the key solutions for investors who do not want to take any form of risk. As far as making the right choice is concerned, an investor can choose any of the types of fixed deposits available in India as per their needs. On a broader scale, fixed deposits come in two types, namely cumulative and non-cumulative. However, banks in general, provide fixed deposits under various categories. As an investor, you must remember that irrespective of the category of fixed deposit you choose, you will make the right decision towards making your financial future stable.
To have a better understanding of the different fixed deposit types, let us highlight each type one by one.
Tax-Saving Fixed Deposits
True to their name, tax-saving fixed deposits help in saving tax. Available in almost all the banks in the country, tax-saving FDs allow only a one-time lump sum deposit. Moreover, tax-saving FDs come with a lock-in period of 5 years during which one cannot withdraw the amount. It must be noted that tax-saving FDs allow investors to claim a tax deduction of up to Rs. 1.5 Lakh on an annual basis.
Senior Citizen Fixed Deposits
Senior citizen fixed deposits are a popular FD option for the elderly. This FD type permits senior citizens to open an FD account easily. The age of the senior citizen must be more than 60 years. One of the key features of senior citizen fixed deposits is that they come at a special interest rate by banks. Moreover, this FD type offers flexibility in the tenure. The elderly can easily make use of their senior citizen FD for enjoying a steady and reliable income source in their life after retirement.
Cumulative Fixed Deposits
Cumulative fixed deposits are those FDs that pay interest along with the principal amount upon maturity. In simple words, the accumulation of interest is done throughout the FD tenor and no periodic income is generated. Under this FD type, the total interest generated is quite high as the interest generated throughout the FD tenor is added to the principal for compounding purposes. Cumulative fixed deposits are advised to investors who wish to grow their savings or create a huge investment corpus for their specific investment goals.
Non-Cumulative Fixed Deposits
Non-cumulative fixed deposits are the FD type that provide interest on monthly, quarterly, half-early, yearly basis according to the choice of the investor. In this FD type, the interest is not accumulated, but paid out at intervals, thereby generating a periodic income throughout the tenor. Due to the payout frequency being on the higher side, the interest generated and payout amount is low. Such type of FD is advised to those looking for regular fund expenses without having an impact on the principal.
Flexi Fixed Deposits
As per its name, the flexi fixed deposit is a fixed deposit type that comes with the flexibility and convenience for customers. This FD type is the ultimate combination of a fixed deposit and a recurring/savings account. Under this fixed deposit type, the investors reap the benefit of high FD interest rates along with liquidity offered by saving accounts. Flexi fixed deposits also come with the facility of partial withdrawals up to a specific amount from the savings/current account (generally merged with a fixed deposit in flexi FDs).
NRI Fixed Deposits
As the name suggests, NRI fixed deposit is a fixed deposit type that can be availed by Non-Resident Indians (NRIs). It must be noted that domestic citizens can also apply for NRI FDs. When it comes to making a choice, NRIs have a vast number of fixed deposit options to choose from. NRE Fixed Deposits, NRO Fixed Deposits, FCNR Fixed Deposit and RFC Deposit are some of the NRI fixed deposit options that NRIs can select from as per their specific needs. It must be noted that the various types of NRI FDs differ based on currency, repatriability, tax, and tenure.
Fixed Deposits come with a vast range of benefits. If you are a risk-averse investor and wish to depend on a fixed deposit account for investment purposes, opt for an FD type that suits your needs the best. No matter what FD type you choose, rest assured you will get guaranteed returns, competitive interest rates, and tax benefits.
Why Should You Choose Life Insurance Over Different Types of Fixed Deposits?
While you may find a series of options to choose from for your Fixed Deposit investment, it is still advised to prefer life insurance over fixed deposits.
If new to life insurance, learn that it is a contract between an individual and an insurance company. Under life insurance, the insurer promises to provide a specific sum in the case of unfortunate death of the life assured or on plan maturity. Anyone can buy life insurance by paying a premium.
Below mentioned are some of the prime reasons you should consider choosing life insurance over various types of fixed deposits:
- Life insurance allow insurance and investment at once.
- Life insurance safeguards you against different risks. It gives your family members or dependents the financial protection they need in case of your unfortunate death.
- Life insurance covers you for entire life and not just a few years.
- Life insurance provide coverage for a longer period as compared to which the premium is paid for.
- Life insurance comes with different options like pension plan, saving plan, term plan and more to choose from according to one's needs.
- Life insurance grants tax benefits under Section 80C & Section 80D of the Income Tax Act, 1961.
Disclaimer: The above information in relation to Fixed Deposits is for education purpose only and not to be construed as investment advice. Consultation with an investment advisor prior to any investment decision is highly recommended.
Investment Insurance Companies
- Kotak Life Investment
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- Aditya Birla Sun Life Investment
- Bharti AXA Investment
- Edelweiss Tokio Investment
- Pramerica Life Investment
- Canara HSBC Investment
- Reliance Nippon Investment
- Shriram Life Investment
- India First Life Investment
- Sahara Life Investment
- Aviva Life Investment
- Ageas Federal Life Investment
- Star Union Dai-Ichi Investment
Disclaimer: InsuranceDekho does not endorse, rate or recommend any particular insurance company or insurance plan.
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FAQ About Types of Fixed Deposit
What is the maximum deposit amount under an FD?
In general, there is no limit on the fixed deposit amount. However, it is advised that an investor checks the maximum deposit amount with their lending institution to become aware of any upper cap before making an investment.
Is it possible to link a savings account with FD?
Yes! Under Flexi Fixed Deposits, an investor can link their savings account with their fixed deposit.
Do fixed deposits come at a special interest rate for senior citizens?
Yes! Most of the banks offer an additional markup rate of 0.50% in case of fixed deposits for senior citizens. It must be noted that this markup is subject to vary at the discretion of the bank.
How can I open an FD account offline?
You can open an FD account offline by visiting the nearest bank branch of the bank and filling up and submitting an FD account opening form. You can expect your FD account to be opened in 2-3 working days.
Is FD tax-free?
No! Fixed Deposits are not tax-free. Nonetheless, if an investor wishes to save tax, they can opt for tax-saving fixed deposits. Under tax-saving FDs, an individual can claim up to Rs.1.5 Lakh of deduction under section 80C of the Indian Income Tax Act, 1961.