In a fixed deposit, a lump sum is invested in a bank or NBFC for a fixed tenure, at an agreed rate of interest. Bank fixed deposits are considered to be safe. Even non-banking financial institutions NBFCs, offer fixed deposits. The longest term in a FD is 10 years.
A fixed deposit is a financial instrument that provides investors with the option of depositing surplus money at higher interest rates than savings bank accounts, provided the money is locked in till maturity. It is a safe investment compared to other investments like stocks or mutual funds.
The money can be deposited for a specific period ranging from 7 days to 10 years. Once the money is invested with a bank or NBFC, it starts earning interest based on the duration of the deposit. Usually, the amount deposited in FD cannot be withdrawn before maturity, but you may withdraw after paying a small penalty.
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Any individual, who is ready to invest his/her money for the agreed period, can invest in an FD. You must remember that there is no liquidity in FDs like SB accounts and banks are offering higher interest rates to compensate for the same. Individuals who have no other option of saving tax can invest in 5 year Tax Saver FDs to avail tax deductions. This has a 5 year lock-in period. To enjoy the maximum benefits of FD, you must invest money for the complete period (Till Maturity). You need to keep in mind that premature withdrawal attracts penalties.
As an investor if your concern is safety of investment, then go for bank deposits. There should be no risk in keeping money in fixed deposits with Nationalized Banks in India. The Government of India is a major shareholder in all Nationalized Banks and these banks are monitored and controlled by the RBI.
SEE ALSO: Why ULIPs Are Better Than FD? - (Revised)
FDs can be opened by personally visiting the nearest bank branch or even online. Before finalizing the bank, make sure to go through the interest rates and choose the one that offers best interest rates on fixed deposits.
FD can be opened in the following ways:
Online: You can open FD online by filling the online application on the bank’s official website. You must have account details and required documents to open FD online. You can also open a fixed deposit via net banking. Net banking can be availed if you already have a savings/current account with the bank. For opening a fixed deposit, login to the banks website by using log in ID and password and follow the steps given below:
Offline: You can open FD offline by visiting the nearest branch with all relevant documents. Fill the offline application and submit a copy of all the required documents. Select the tenure and deposit the money. Once the account is opened, a fixed deposit certificate is issued, that can be collected from the bank after two days.
Fixed deposit offers a sound investment avenue for investors as the returns are guaranteed and do not depend on market fluctuations. You can get the interest income on a monthly basis, quarterly basis or cumulative basis
Following are the features of fixed deposit:
SEE ALSO: Fixed Income Securities
Following are the advantages of fixed deposits:
SEE ALSO: Why Senior Citizen Saving Scheme Better Than FD?
Though fixed deposit is a safe investment and offers guaranteed returns, they are not suitable for everyone. Following are the disadvantages of investing in fixed deposits:
Below table shows the interest rate of fixed deposit offered by popular banks:
Bank |
Normal Citizens |
Senior Citizens |
State Bank of India |
5.75% – 6.85% |
6.25% – 7.35% |
HDFC Bank |
3.50% – 7.40% |
4.00% – 7.90% |
ICICI Bank |
4.00% – 7.50% |
4.50% – 8.00% |
Axis Bank |
3.50% – 7.60% |
3.50% – 8.25% |
Kotak Mahindra Bank |
3.50% – 7.30% |
4.00% – 7.80% |
IDFC Bank |
4.00% – 8.25% |
4.50% – 8.75% |
Bank of Baroda |
4.50% – 6.85% |
5.00% – 7.35% |
IDBI Bank |
5.75% – 7.05% |
5.75% – 7.55% |
Indian Bank |
4.50% – 6.75% |
5.00% – 7.25% |
PNB Bank |
5.70% – 6.75% |
6.20% – 7.25% |
Allahabad Bank |
5.00% – 6.75% |
– |
Andhra Bank |
4.00% – 6.80% |
4.50% – 7.30% |
Bank of India |
5.25% – 6.70% |
5.25% – 7.20% |
Canara Bank |
5.75% – 7.00% |
6.25% – 7.50% |
Central Bank |
4.75% – 6.60% |
5.25% – 7.00% |
Union Bank of India |
5.00% – 6.85% |
5.50% – 7.35% |
Corporation Bank |
4.50% – 6.80% |
5.00% – 7.30% |
Syndicate Bank |
4.75% – 6.80% |
5.25% – 7.30% |
Citibank |
3.00% – 7.50% |
3.50% – 8.00% |
HSBC Bank |
3.15% – 7.00% |
3.65% – 7.50% |
Parameter |
Fixed Deposit |
ELSS |
Eligibility to Invest |
Fixed deposits can be opened by any Indian citizen. NRIs are also eligible to open a fixed deposit. |
All citizens of India can invest in Equity Linked Savings Schemes. Even NRI’s can invest in ELSS. |
Facility of Joint Investment |
Fixed Deposits can be opened jointly with spouse. |
Joint investments can be made in ELSS. However, only the first holder gets tax deduction. |
Lock-in period |
The minimum lock-in period ranges between 7 days to 10 years. |
The minimum lock-in period is 3 years. |
Pre-mature withdrawals |
You cannot withdraw from a FD before maturity without penalties. |
Withdrawals are not allowed until the lock-in period of 3 years. |
Returns |
The rate of interest is decided by the banks. |
The rate of return depends on the markets. |
Rate of return for the entire tenure |
The rate of return is fixed and does not vary across tenure of investment. |
The returns on ELSS are not fixed and there is no guaranteed return. It is decided by market movements. |
Facility of Loan |
Credit cards are issued against fixed deposit called secured credit card. |
No loans are provided against investment in ELSS.
|
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