A to Z about Fixed Deposits and Schemes


Everyone loves to make money, and it is their dream to be luxurious.  Most of the people start with saving and investing their money in smart financial products to make more money in future.  With time, the ways to save and invest money have increased, and the financial market offers various investment options to save money. There are many ways to multiply the funds and make a luxurious future. The most traditional way is saving. It can help bring a financial habit of planning and saving.  The most preferred mode of investment and saving option is the fixed deposit.

What is an FD or Fixed Deposit?

An FD or a fixed deposit can be defined as a saving where one deposits an amount for a fixed tenure at a high rate of interest. When the FD reaches maturity, the individual can receive both the principal amount with interest earned during the loan tenure.

Why must one choose Fixed Deposit?

  • Fixed deposits are the safest way to invest for an individual. It guarantees the returns when the tenure is finished. There is a huge risk of losing money when invested in any other financial services. But in the case of a fixed deposit, there is no risk involved in the investments.  There is always a promised set of returns in the fixed deposits. The returns will include the principal amount with interest based on the tenure opted for the loan.
  • When compared with other normal savings account, FD interest rate is high. The investor will deposit savings for a fixed tenure or period, and the banks or NBFC will offer a higher rate of interests.
  • When an individual faces a financial crisis, an FD can come to save you from the crisis. The individual can opt for a loan against his/her fixed deposit. Instead of opting for personal loans, loans against fixed deposit will be more quickly and easy to avail during any financial emergency. Also, the interest rate is lower in a loan against fixed deposit when compared to the personal loan.
  • The key advantage of FD is the nature of being flexible. The individual can deposit any amount of choice for any tenure ranging from days to years which will help in planning the savings for future benefits. A fixed deposit does not require any heavy investments. The investor can even make a very trivial amount as deposit for the FD. When there is an urgent need for money, one can break the Fixed deposit account and withdraw money before its maturity period.
  • The fixed deposit will bring the habit of saving and will cultivate a financial discipline. The investor can enjoy the entire benefits of the scheme when the amount deposited is not withdrawn before the maturity period or tenure.

Common restrictions about the Fixed Deposits

There are a few common restrictions with the fixed deposits. They are,

  • A fixed deposit will return much lower than other asset classes- As FD returns are capped, the other asset classes returns can be more or less in certain cases. As far as FDs are concerned, there is a redemption of interest and principal amount.
  • Real returns are lower for Fixed Deposit Returns when adjusted for expansion- Inflation or expansion is a prime factor that affects every asset classes unless the returns are marked on an index of inflation. Hence, the adjusted inflation returns are very much lower.

Re-look at Fixed Deposits-

  1. They can serve to meet the specific requirements and goals such as marriage, education, house renovation and other financial emergencies.
  2. They can also act as a regular feed to other asset classes, i.e. debt or equity depending on the market cycle for purchasing at a lower price.
  3. They will act as a comfort to entirely take active care or support regular EMI payments.

The above-listed factors can be made possible only when one re-invents the perception of the fixed deposit strategy.

How to make Fixed Deposits work effectively?

  • Spread of risk- It is very much essential to have a widespread fixed deposit investment across financial markets in the field. When deciding on banks, one should look at the nationalised, co-operative as well as private banks. The investor can invest in companies that have excellent ratings of credit.
  • Multiple tenors– It is always advisable to have a mixture of tenors while investing in the FDs. When the investment in fixed deposit is locked for a particular tenor, one will let go off the opportunities for revision of interest rates and other asset opportunities. There is no particular rule for a tenor to be longer or shorter. It always depends on the goals or the ability to speculate the investing opportunities.
  • Doubts about compound interest- It is a very common logic to think to compound the interest rates on a fixed deposit, the yield is higher than other normal compounded interest rates. The act of compounding will remove the opportunities to reinvest on the regular interest at a very higher rate when opportunities arise.
  • Hire smart financial planner– Always working with a financial planner is very much advisable when there is no passion for investing. In very minimal fees, one can easily re-energise the portfolio for investment.

Types of Fixed Deposits

  • Normal Fixed Deposits- Money can be deposited for a fixed tenure or a period. The tenure can range from seven days to ten years, depending on the scheme. The interest rate involved is higher than a normal savings account.
  • Tax-Saving Fixed Deposits- There is a tax exemption on the amount of principal deposit in a calendar year with this type of FD. There is a fixed lock-in period of five years, within which one cannot even withdraw the amount. It allows the only one-time deposit of a lump sum money.
  • Senior Citizen Fixed Deposits- It is applicable for the individuals who are above sixty years of age. There are special rates for senior citizens when it comes to interest rates. They will also be offered with flexible tenures.
  • Cumulative Fixed Deposits- The interest rates are compounded in every quarter or yearly, and the amount is paid at the time of the maturity. It will help in growing your savings.
  • Non-Cumulative Fixed Deposits- The interest can be paid at the choice of the individual which can be annual, monthly, quarterly, or half yearly. This is suitable when the pensioners are looking for a regular source of income.
  • Flexi Fixed Deposits- The fixed deposits are linked to the bank accounts of the individual. The money will always shuttle between the FD account and savings account of the individual. .

Features of a Fixed Deposit investment-

  • They are very safer than any other financial investments in the market.
  • One can always earn interest over a fixed period.
  • It offers the most flexible tenures of up to 10 years.
  • There is no cap on the maximum deposit.
  • It offers added features and additional rates for senior citizens.

With the proper understanding of the fixed deposits in the financial markets, one can make the most out of the investments made in them. They can be rediscovered and made to multiply the money of any individual when applied effectively. The fixed deposit schemes are the safest and secure investment options available in the market.


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