What Is A Fixed Deposit Account?

A fixed deposit, often called by its abbreviation - FD, is an investment option provided by banks and non-banking financial companies (NBFCs) to help you grow your savings. An FD account allows you to invest your money for a certain length of time at a specified interest rate. At the end of the tenure, you receive your money back along with the interest. Fixed deposit accounts come with a variety of interest rates and tenures.

The speciality of FD lies in its flexibility. You can choose a fixed deposit for a term ranging typically from 7 days to 10 years or even longer.  Depending on your preference, the interest you earn is either paid at once or in regular intervals. Typically terms and conditions of a FD account do not permit you to withdraw the funds before the maturity date, in case premature withdrawal is allowed penalties will be imposed on you as per the terms and conditions which you enter with your bank/NBFC at the time of opening of the fixed deposit account.

Features and Benefits of Fixed Deposit Accounts

Once deposited, the interest rate on a fixed deposit account remains stable. You will obtain pre-agreed returns regardless of how interest rates fluctuate or how the economy performs during the term. Your investment typically in a fixed deposit will provide you with periodic interest income and you will get the principal back on maturity of the FD. 

In India, FDs have become synonymous with investment because of their dependability and risk-free returns. Every working adult is often compelled by their peers to consider saving through FD.  Interest rates are determined by the financial institutions and can vary between public sectors, private sectors, or small finance banks. Senior citizens benefit the most from fixed deposits as the interest rates are higher. You may also liquidate your FD and obtain funds in an emergency. Opening a fixed deposit account means enjoying a wealth of advantages. The following are just some of them:

a) Promised returns

 One of the most prominent benefits of investing in a fixed deposit account is that there are assured gains.  Unlike mutual funds or any other investment options, there is minimal risk involved in case of FD. You get what you are promised.

b) It takes little to no effort to open a fixed deposit account

Fixed deposit accounts can be opened within minutes due to a highly simplified KYC process. You can enroll for an FD account online or visit your nearest branch for a bank/NBFC representative to guide you through the process. You can invest in an FD digitally through Kuvera, the whole process is completely paperless.

c) A high rate of interest

Customers typically receive a greater interest rate on fixed deposits than on savings accounts or other types of term deposits like recurring deposits.

d) Flexibility in tenure

You can start a fixed deposit investment for a timeframe anywhere between seven days to ten years or even a greater time period. This allows you to invest according to your needs.

e) Own multiple FD accounts

You can have multiple FD accounts opened at any point of time. In case you want your investments diversified, you can always start another FD account and expect considerable return.

f) Tax benefit

You can seek a tax exemption of up to INR 1,50,000 under Section 80C of the Income Tax Act of India with FD in case you have invested in a Tax Saver Fixed Deposit. (In case of a tax saver FD your investment is locked in for a minimum period of 5 years). 

g) Your chances of loan approval increases

A Fixed Deposit is a good investment, especially in case of a financial emergency. FD can be used as a collateral to receive loans from banks. Banks approve loans against a fixed deposit instantly. Depending on the bank, you can typically borrow up to 95% of the value of your fixed deposit. 

What are the types of FD and who should be investing in them?

Who should be investing in an FD depends on the types of fixed deposit options available in the market. Based on the account attributes, the type of account holder, and the motives for opening the account, fixed deposit. However, it's advisable to start as early as you can once you start working. You can be as young as a 21 year old. Many young people are not inclined towards investing in FD, however, before dismissing the FD basis the assumption that they provide low returns, one should understand the various kinds of FD account available in the market at present: 

1. Regular FD Account

Indian citizens under the age of 60 are eligible for the regular FD account. The interest rates on a regular FD account will be lower than those provided to the elderly. 

2. Senior Citizens' FD Account

This account is for those consumers who are over the age of 60 years. Such account holders get a higher interest rate than others by 0.5%. They also have access to the monthly interest payout option, which they can use to fulfil their monthly expenses. 

3. Corporate Fixed Deposit Account

NBFCs provide FD facilities similar to the one offered by banks. Just like the FDs offered by banks these FDs provide you with a fixed rate of interest. These FDs are referred to as corporate FDs. Kuvera allows you to invest in corporate FDs digitally, without any hassle of paperwork. Bajaj Finance Limited one of India’s most trusted and recognised NBFC has launched a number of corporate FDs offering market-beating returns, these FDs are available for various time periods. 

4. Tax-Saving FD Account

If you don't like taking risks, then opting for a tax-saving FD account will greatly benefit you. A tax-saving FD account has a five-year minimum lock-in term where the amount deposited will be considered for tax deduction under Section 80C of the Income Tax Act of 1961.

5. FCNR FD Account

NRIs can create a non-repatriable FD account and deposit the cash they earned abroad in India. You don't have to change the currency of the deposited amount and still enjoy significant returns. US Dollars, Pounds Sterling, Euro, Japanese Yen, and other currencies are widely accepted for the purposes of opening an FCNR FD Account.

6.  FD Account With Monthly Payout

If you can't wait till the end of 5-10 years to reap your harvest, then this type of FD account would suit you. The interest earned here is paid out every month. However, the accumulated interest will not be added back to the principle, and the interest will not be compounded. You can have the interest component deposited into your savings account for monthly expenses. 

How does Fixed Deposit work?

Banks provide various facilities like savings, current accounts, fixed deposits etc. The idea behind providing all these facilities is using the money deposited in these accounts for purposes of lending. 

A fixed deposit blocks an amount of money for an agreed duration ranging from 7 days to 10 years or a even greater period. The interest rate on a deposit is based on the time the funds are with the bank. The depositor is not permitted to withdraw funds before the deadline at least not without paying penalty. You can also calculate the amount to be invested to achieve a certain goal and the interest you will earn using the FD calculator to help you make a firm decision. Premature withdrawal is available in some banks. However, it comes at a decreased interest rate. The bank/NBFCs credits the depositor's saving bank account with the principal and interest on the maturity date. One can also opt for monthly interest payouts. 

In a nutshell, before selecting the bank/NBFCs for your fixed deposit investment, you must first evaluate the interest rates, choice of tenure, frequency of interest payments, and facility for premature withdrawal. 

How to invest in FD?

A fixed deposit account may be opened via online and offline methods. To open an FD account offline, you will need to visit the local branch of the bank, post office, or NBFC. Kuvera makes booking an FD completely hassle-free. No need to visit a bank or any paperwork. What’s more, you can choose from multiple banks and NBFC fixed deposits on Kuvera. Sort by Banks and NBFC, tenures and interest rates, and book a fixed deposit online within minutes. Read to know how:  

How to book an FD on Kuvera

Step 1: Download the Kuvera app or visit our website and sign up.

Step 2: Complete your KYC with PAN, Aadhaar, and In-person verification through video. It is mandatory to complete KYC compliance under the Prevention of Money Laundering Act, 2002, and the rules framed there under, read with the SEBI Master Circular on Anti Money Laundering (AML) Standards/ Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries.

Step 2: Select the ‘Invest' option from "Home"

Step 3: Select ‘Fixed Deposits’

Step 4: You will see a list of multiple fixed Deposit options on Kuvera, sorted by tenure, bank, NBFC etc. Click on any FD to check its tenure, interest rate, and minimum deposit required. To be sure, check the lock-in period of the fixed deposit. 

Step 5: Select the fixed deposit you want to invest in, and tap on “Start FD”.

Step 6: You will be asked to provide your primary bank account details - IFSC code, account number and account type. 

How to book Axis Bank Fixed Deposits on Kuvera

Step 1: Download the Kuvera app or visit our website and sign up.

Step 2: Complete your KYC with PAN, Aadhaar, and In-person verification through video. It is mandatory to complete KYC compliance under the Prevention of Money Laundering Act, 2002, and the rules framed there under, read with the SEBI Master Circular on Anti Money Laundering (AML) Standards/ Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries.

Step 2: Select the ‘Invest' option from "Home"

Step 3: Select ‘Fixed Deposits’, and then ‘Bank Option’ to get the categories listed.

Step 4: You will be directed to a list of all fixed deposit options of Axis Bank. By clicking on every FD, you can check its tenure, interest rate, and minimum deposit required. To be sure, check the lock-in period of the fixed deposit. 

Step 5: Select the fixed deposit you want to invest in, and tap on “Start FD”.

Step 6: You will be asked to provide your primary bank account details - IFSC code, account number and account type. 

How to book Bajaj Finance Fixed Deposits on Kuvera

Step 1: Download the Kuvera app or visit our website and sign up.

Step 2: Complete your KYC with PAN, Aadhaar, and In-person verification through video. It is mandatory to complete KYC compliance under the Prevention of Money Laundering Act, 2002, and the rules framed there under, read with the SEBI Master Circular on Anti Money Laundering (AML) Standards/ Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries.

Step 2: Select the ‘Invest' option from "Home"

Step 3: Select ‘Fixed Deposits’, and then the ‘NBFC’ Option to get the categories listed.

Step 4: You will be directed to a list of all fixed deposit options of  Bajaj Finance FD. By clicking on every FD, you can check its tenure, interest rate, and minimum deposit required. To be sure, check the lock-in period of the fixed deposit. 

Step 5: Select the fixed deposit you want to invest in, and tap on “Start FD”.

Step 6: You will be asked to provide your primary bank account details - IFSC code, account number and account type. 

How to withdraw a fixed deposit

Once your fixed deposit has crossed the maturity period, you shouldn't delay in claiming the proceeds. It's pretty natural to lose track of every investment from time to time. However, if left unclaimed, you will lose out on the returns which you may get by reinvesting the matured amount elsewhere. One should check from time to time the status of his/her investments in order to ensure that all investments are providing optimal returns. . 

To withdraw a fixed deposit after maturity, you can apply on the website or visit the bank to withdraw the fixed deposit amount. You need to fill out a form to close the account permanently. The funds will be credited to the savings bank account connected with the closed fixed deposit. It typically takes just 8 minutes for the closure of the fixed deposit account. 

Fixed Deposit Schemes and Interest Rates

The word 'fixed' in deposit doesn't mean the interest rates would be uniform or stable across the banks in India. It's advisable to compare every available fixed deposit interest rate before finalising. 

In comparison to banks, NBFCs typically offer higher FD interest rates. But you need to look out for credit ratings of NBFCs to understand the associated risks. Many government saving schemes which have many features in common with fixed deposits like the Post Office Savings Account, National Savings Recurring Deposit Account and Sukanya Samriddi Accounts have encouraged the habit of savings even amongst the people from lower income strata as they offer interest on deposits as low as INR 250.

Do I have to open a new bank account to invest in its FD?

If you are not impressed with your bank's FD interest rates but don't want go through the hassles of opening a new account in another bank, Kuvera has a wide range of FD options for you. Explore fixed deposit options from banks and NBFCs with good ratings. You can review these based on tenures, interest rates and other factors and make an informed decision. What's more, you can start an FD online without opening a new account or dealing with any unnecessary paperwork. You can choose any FD available on Kuvera with just  your primary bank account linked to Kuvera.

When should I consider an FD investment?

Most Indians keep a portion of their income invested in FIxed Deposit, as it keeps them secure from market volatility. FD investments are one of the few safe options amongst others that assure you a stable return. Hence, you should give due priority to FD investments in your portfolio basket.

An FD investment is a great option to counter the effect of rising inflation on your savings and emergency fund. Upon maturity, you get your investment back along with interest that’s higher than your savings account. 

If expenses like settling abroad, education or marriage are less than three years away, consider putting aside those savings in an FD.. You can also secure a loan easily secure a loan against FD for any need.

Senior citizens who are looking for monthly income after retirement can invest in  non-cumulative FD.

 Frequently Asked Questions

1. How is a non-cumulative deposit scheme different from a cumulative deposit?

In a non-cumulative deposit scheme, you earn  interest only on the initially invested principal amount.

This earned interest is paid out periodically, let’s say every year.  In a cumulative deposit scheme, the interest earned for a specific period gets reinvested, and you now earn interest on this along with the principal amount. This is repeated every subsequent period, helping you earn more on your investment. This is the power of compounding at work. 

2. Can a minor hold a fixed deposit?

Minors alone can be named for a fixed deposit as long as they are represented by their natural or legal guardian and the latter signs the application. 

3. What are the minimum and maximum FD amounts that can be invested through Kuvera?

You can open an FD account for as low as INR 5000 to open on Kuvera. The maximum investment amount is INR 5 crore.  

4. Who can open an FD account?

Residents in India, Hindu Undivided Family (HUF), private companies, limited Companies, partnership firms, sole proprietorship, associations, clubs and societies, family trusts and minors (via their natural or legally appointed guardian) are authorised to open an FD account. 

5. How much tax is deducted from fixed deposits?

The tax imposed on FDs at source can range from 0% to 30%, according to the income tax slab of the investor. Financial institutions levy 7.5% TDS if the interest gained exceeds Rs. 5,000 in a financial year. However, this is only when you provide your PAN details to them. If your PAN details are not submitted when opening an FD account, then TDS of about 20% TDS will be deducted.