Which Type of FD is Best?
Published On May 03, 2023
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Fixed deposits are the safest and most affordable investment options in India. Banks and financial institutions provide a variety of fixed deposit options. So, you may be confused about which type of FD is best for you. Read on to understand the types of FDs and which one is suitable for you in detail.
What Are Fixed Deposits?
FD is an investment plan that provides assured and attractive returns to investors. The financial institution determines the FD interest rate when an account is opened. By investing in fixed deposits, you can accomplish both your short- and long-term financial goals. The amount deposited in an FD account is fixed and cannot be withdrawn for a specific tenure. However, during financial emergencies, if anyone wishes to withdraw funds from their FD account before a maturity date, they may have to pay an additional fee.
Types of Fixed Deposits
Banks and financial institutions offer various types of FDs. The investor can compare them and choose the one that best suits their financial needs. Here’s a rundown of the types of fixed deposits in India.
- Tax-Saving Fixed Deposits: Fixed deposits are considered taxable investments. However, with tax-saving fixed deposits, you can claim benefits of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. The lock-in period for this type of fixed deposit is five years. Therefore, you cannot prematurely withdraw your funds.
- Standard Fixed Deposits: Here, funds are invested in the FD account for a fixed term that ranges from 7 days to 10 years. The interest rate for standard deposits is much higher than that of a regular savings account. Furthermore, during financial emergencies, you can avail of loan and overdraft facilities against your FD.
- Special Fixed Deposits: Similar to standard fixed deposits, this type of FD allows you to invest for a specific tenure. However, special fixed-deposit investors cannot prematurely withdraw their deposits. Furthermore, the interest rate for special deposits is higher than that for standard fixed deposits.
- Regular Income Fixed Deposits: If anyone is looking for a partial source of regular income, this type of fixed deposit would be the best choice. Under regular income fixed deposits, the banks and financial institutions pay monthly or quarterly interest to the investors. You can choose the interest payout tenure as per your financial needs.
- Senior Citizen Fixed Deposits: Senior citizens above the age of 60 years can apply for this type of FD. The investor is eligible to receive an extra 0.50% interest rate on their FD account.
- Flexi Fixed Deposits: This type of FD provides convenience and flexibility to investors. Here, your FD account is linked to your savings account, and you can make regular savings by setting a limit on your savings account. You can start your flexi-fixed deposit with a minimal amount of your choice. Thus, this is also considered the most affordable type of FD.
Which Type of Fixed Deposit is Best?
Different people invest for different purposes in fixed deposits. Some might want to create a bank for their child’s higher education, while others may want to buy a car. So, you can choose the best type of FD by analyzing your financial needs.
Flexi-fixed deposits may be the ideal option if you have short-term goals and want high liquidity. You can earn substantial profits and make withdrawals without incurring penalties with these types of FDs. However, tax-saving or special fixed deposits would be an ideal choice if you have long-term financial goals and fewer liquidity constraints.
To Sum Up
Fixed deposits are a great traditional investment option. The bank and other financial institutions offer six different types of FDs. Therefore, you can know your financial needs to choose and invest in the best type of FD.