April 26, 2023

What is Fixed Deposit (FD): Interest Rates, Benefits & Account Opening Process

What is a Fixed Deposit?

Fixed deposit (FD) is a common financial instrument that most banks and non-banking financial institutions (NBFCs) offer to their customers. It is also called a 'term deposit.' Customers can invest a specific amount of money through an FD for a specific amount of time at a specific interest rate. You receive your sum and the compounded interest at the end of the fixed time.
The interest rate depends on the tenure you hold your FD for. Fixed deposits are offered for various lengths, from extremely brief tenures of 7 to 14 days to long tenures of 10 years.

How Does It Work?

One may compare a fixed deposit to a loan to a bank or an NBFC. When you invest in an FD, the financial institution assures you that it will return your money at the end of the tenure, often known as the maturity period, and will also pay you interest. You receive a percentage of this interest. The bank may use this cash to lend to further borrowers, who will be charged interest.
The tenure or maturity duration of the FD determines the interest rate. A 7-day FD will have a lower annual interest rate than a one-year FD. It makes up for the financial time risk. Simply put, a rupee today is worth more than it will be in a year. It is because inflation gradually drives up prices. A rupee today will buy you more products than it will in a year. This calls for payment to an investor.

Features

  • The principal only needs to be submitted once. You should start a new Fixed deposit if you want to make more deposits.
  • The interest rate is more than the savings account's rate.
  • The tenure spans between seven days and ten years.
  • Fixed deposits can be easily renewed.
  • Before the maturity period, one can rarely withdraw. The account holder is responsible for any penalties associated with an emergency withdrawal.

Types

Standard Fixed Deposit

A typical fixed deposit entails an investment of funds for a certain amount of time at a predetermined interest rate. A standard fixed deposit can be made for a duration of 7 days to 10 years. The majority of stakeholders have chosen this FD option.

Special Fixed Deposit

Unique Fixed Deposits are considered special since they are frequently provided for a limited time. A particular time frame can last anywhere from 290 to 390 days. Special FDs are preferred by many stakeholders since they provide a higher interest rate.

Tax Saving Fixed Deposit

Tax-savingUnlike standard fixed deposits, tax-saving fixed deposits cannot be reserved for terms shorter than five years. Section 80C of the Income Tax Act of 1961 exempts the amount invested from taxation, but the interest earned on the FD is subject to taxation.

Floating Fixed Deposit

In a floating fixed deposit, the rate fluctuates every three months or once a year, and customers can benefit from shifting interest rates.
The Reserve Bank of India's guidelines dictate how the interest rate will vary.

Benefits

Guaranteed returns

Fixed deposits offer a guaranteed rate of return on investments, in contrast to market-linked instruments, which could experience losses due to market volatility. FDs offer safer capital preservation and higher yields than savings accounts.

Compounding

By investing in FDs, you can receive interest on interest, resulting in bigger returns and quicker money growth.

Low Minimum Investment

FDs are a fantastic alternative if you want to develop an investment habit but need a sizable sum of money to do so. Investment amounts can start as low as Rs. 500.

Liquidity

One may withdraw an FD before maturity, but they will lose some interest in the time that is missed. However, since you can liquidate the FD in an emergency, this gives you the advantage of liquidity.

Easy procedure

Net banking or mobile banking make it simple to invest in FDs both offline and online.

How to open an FD Account?

Online Process

As a shareholder, you can easily open an FD account online and benefit from features like simple payment, closure, and renewal. Various banks may have different procedures, but the general steps you can take to open an FD account online remain the same.
To open a fixed deposit account online:
  • Go to the bank's online website.
  • Log in to your current ID or create a new one.
  • Choose 'FD account' from the menu.
  • Include all relevant information, including the principal amount, candidate, tenure, etc.
  • Verify your information and send in your payment.
  • Download the receipt as soon as possible for your records.

Offline Process

Any bank you choose would allow you to open an FD account, even if you already have one. It doesn't matter if you already have an account with the bank; the procedure for opening an FD account is the same for everyone. These are the procedures:
With an existing account: Submit the completed FD application form to your bank branch.
Without an existing account: You must complete your KYC by submitting the FD application form and documentation proving your identity, address, and other details.

Who Should Invest in FD?

FDs are a good investment option for:
  • People who wish to invest with a low-risk appetite. (FDs assure returns)
  • People who want to meet short-term goals. (Volatility in FDs is low)
  • People who want to balance the risk in their portfolio. (FDs balance the risks of market-linked instruments like mutual funds)
  • Retired individuals who are looking for a stable income source

Taxation

The term and frequency of withdrawals determine your fixed deposit's interest rate.
You can use the following formula to determine the FD interest rate: -
A = P(1 + r/n)^n*t
Where,
A: Maturity amount
P: Principal
r: rate of interest
n: compound interest frequency
t: Total tenure
The rate that the bank prorates and the frequency of payouts determine the interest payment made upon maturity of a fixed deposit. Either simple interest or compound interest is used to calculate the interest on the principal amount. The sum due upon a contract expiration is higher with compound interest because, after each compounding, interest is calculated on the principal.

Eligibility

Entities eligible for opening an FD account in India are:
  • Indian residents, including minors and senior citizens
  • NRIs
  • Companies
  • Partnership Firms
  • Societies and Clubs
  • Individuals or Joint investors

How Can FD Help Your Portfolio?

Balance

FDs are safer than other market-linked instruments that contain an element of risk. Thus they add balance to your portfolio.

Positive Net Value

FDs can maintain a positive net value of your portfolio even when the market is low.

Suitable For Short-Term Goals

FDs are a better choice for short-term financial goals, unlike equities which are better for long-term goals.

FAQs

What is the minimum age requirement for opening an FD?

There can be an FD for even a year-old child, but the parents or guardians must hold it on the child's behalf. Anyone over 18 can open an FD account.

Is FD transferable?

No, a fixed deposit is not transferable.

Can I liquidate my FD before maturity?

Yes. Most banks allow premature withdrawal of FDs in cases of emergency after levying a minor penalty, but not on tax-saving FDs.

Never miss a trading opportunity with Margin Trading Facility

Enjoy 2X leverage on over 900+ stocks

Upstox Margin Trading Facility
Apple Logo
Downloadlogo
iOS App
Google Play Logo
Downloadlogo
Android App

RELATED ARTICLES

Fly High in Style: India’s Top 10 Credit Cards For Airport Lounge Access

Nowadays most credit cards offer airport lounge access, leaving you with a bit of a challenge to choose the right card that will cater to your requirements. Here, we have listed some of the best credit cards that offer free international lounge access. Who wouldn't desire a comfortable travel experience with access to the finest airport services available today? There's no better way to elevate your journey than by indulging in the comfort and sophistication of an airport lounge. The great news is that many [ credit cards](https://upstox.com/banking/find-the-best-credit-cards-in-india/) now offer complimentary airport lounge access. Yet, with so many cards extending this benefit, selecting the ideal card can be a bit of a puzzle. Take a glance at the following list to determine which one suits you best.

What is NEFT - Full Form, Meaning , Timings and How to Transfer Money

If you are into online transactions, then you must have heard of NEFT. This article is for you if you don't know what NEFT is. In this article, we will discuss what NEFT is and the prerequisite knowledge you need to carry out NEFT transactions. Further, we will be talking about the NEFT timings, its charges, and who can conduct an NEFT transaction. Lastly, we will be talking about how to go about the process of NEFT transfer and the transfer limit under NEFT.

How we can Check Deutsche Bank Balance?

It all begins with ' i need to know' and then the 'search' for 'how do i get to know' be it your shopping to home buying to banking. As access to information becomes empowering in helping you make refined choices, the option of using digital options across industries has become a new normal. Banks in India as well as across the globe continue to offer innovative smart, safe and secure ways to go about your banking transaction at your convenience, anytime, anywhere. Let us take a simple example: As a customer of Deutsche Bank India, if you wanted to know your account balance, you had to fill out a form and submit it to your branch or ATM. However, you can now view your account balance online by registering with Deutsche Bank balance check service on your mobile phone without going to the branch or ATM. Let me explain 'how' in detail after I give you a brief on Deutsche Bank. Deutsche Bank AG, founded in 1870 in Berlin is one of the world's premier financial institutions with a total asset base of over EUR1326 billion ( September 30, 2021). As a full service bank its services portfolio comprises investment banking, corporate and retail banking, and asset and wealth management solutions and has footprints in EMEA, the Americas, and the Asia-Pacific. The bank established its Indian operations, Deutsche Bank India in 1980 and over the years spread its branches across 16 cities within India. Headquartered in Mumbai, Deutsche Bank's key focus area has been investment banking, corporate and transaction banking, treasury and derivatives operations, institutional equities broking, retail banking, private wealth management and business processes outsourcing. It launched its retail-banking services in 2005. Deutsche Bank India has a total asset base of ₹129,430 crore and (as on March 31, 2021). Let us now delve deep into the ' how is the online balance enquiry done' at Deutsche Bank India. - To begin with you must have an existing account with Deutsche Bank India. - Secondly, you need to activate your Deutsche Bank balance check service online on your registered mobile number by downloading Cointab app for Android or iPhone Install app. - Select Deutsche Bank for bank account registration and subsequently all your Deutsche Bank accounts will be registered and activated for mobile banking. - You now have to enter your debit card number to generate a secure banking PIN and select the Balance Check option. - Finally by entering your banking PIN, your account balance will be displayed on the screen - Deutsche Bank India does not charge any additional fee for this service. - You don't have to call any toll-free number or send an SMS or give any missed calls. - Besides, you can check your account balance anytime, anywhere, even on Saturday and Sunday and Bank holidays. - You can access your Deutsche Bank balance enquiry service any number of times , free of charge. Besides, mobile banking method which has been discussed in the above details, customers can also do their Deutsche Bank Balance Enquiry through other mediums such as: - Net banking - Phone banking - ATM - Passbook

Your Guide to Link Mobile Number with Bank Account: Physical and Gigital Means

Linking your mobile number with your bank account is a vital step in today's digital [banking](https://upstox.com/banking/) landscape. It not only provides you with real-time transaction alerts but also adds an extra layer of security to your financial dealings. We are living in a very digitally driven world today. Literally everything is online and that includes your banks, your accounts and therefore your personal data. While online is easy, it has led to concerns associated with security. Several initiatives have been undertaken to ensure people safety, data security and convenience. With smartphones in every individual’s hand and banks building a solid online presence, banking is now one click away. While transactions are being simplified and sophisticated, they also need to be bullet-proof. Hence, it has become very important to link your mobile number with your bank account. It is a simple process that allows you to receive real-time alerts, transaction notifications, and enhances the overall security of your financial transactions. In this blog, we will take you through the simple steps to link your mobile number with your bank account.