What Are the Different Types of Bank Fixed Deposits?

Fixed deposits have remained a popular form of investment for decades. It is probably still the first thing that comes to people’s minds when they think of investing a sum of money. Thanks to a wide range of fixed deposit types, you can choose to invest your money the way you want, while having the peace of mind that your money will remain safe, earning you a fixed sum of return for a given period.

A fixed deposit, or more popularly, an FD, is an investment instrument where you deposit a certain sum for a fixed period. It earns you interest at a fixed rate, which is communicated to you at the time of investing. There is a guarantee on the principal as well as the interest amount, which makes fixed deposits one of the safest investment options. 

Fixed Deposit Types

Different investors have different investment objectives. FDs come in a wide variety of choices, catering to different kinds of needs. Let us take a look at them:

Standard Fixed Deposits

This is one of the simplest types of fixed deposit types where you can invest for 7 days up to 10 years. Your investment earns a pre-defined interest rate, which varies as per the time period. For example, the interest rate on a 1-year fixed deposit can be 6.1%, while the interest rate on a 5-year FD can be 6.25%. Although your money is invested for a certain period of time, a premature withdrawal facility is available, unless specified otherwise. However, breaking the FD prematurely will attract a premature withdrawal penalty. Most banks offer loans as well as overdraft facilities on these types of fixed deposit types.

Please bear in mind that the interest rate is not directly correlated to the time period; that is, keeping your money for a longer period does not necessarily guarantee a higher interest rate. Check the bank’s interest rate chart before creating the fixed deposit.

When it comes to the interest component, two options are available to you:

i) Withdraw the interest as and when it is paid (monthly, quarterly, etc.). This option is known as the “non-cumulative” option.

ii) You may also choose not to withdraw the interest component and reinvest it in the fixed deposit interest. In this case, you earn returns on this interest component as well. This is known as a cumulative option. Since you earn interest on interest, the final return on your FD works out to be higher, under this option.

For example, suppose you invest ₹10,000 in a fixed deposit for 1-year at an interest rate of 6.1%. The total interest earned by you under the cumulative option will be ₹624 while that under the non-cumulative option with a quarterly payout will be ₹610, and the monthly payout will be ₹607.

Senior Citizen Fixed Deposits

These fixed deposit types are specially designed for senior citizens over the age of 60. They work like standard fixed deposits, however, and earn a slightly higher interest rate than them. Cumulative and non-cumulative options are available in senior citizen FDs.

Tax Saving Fixed Deposit Types

As is evident from the name, these fixed deposits obtain tax benefits under Section 80C of the Income Tax Act. These FDs have a lock-in period of 5 years, and premature withdrawal is not allowed. You can invest up to ₹1.5 lakh in these fixed deposit types. Loan and overdraft facilities are not available for these fixed deposits. Both cumulative and non-cumulative options are available in these fixed deposits. Hence, although your money remains locked in for five years, you can withdraw your interest monthly or quarterly, if you wish.

Recurring Deposits

These fixed deposit types allow you to invest a specified sum of money every month over a given time period. They earn you a fixed interest rate, like standard fixed deposits. For example, let us assume a 1-year recurring deposit has an FD rate of 6.1%. If you invest ₹ 10,000 per month for 1 year, you will obtain a total payout of ₹124019 (₹120,000 principal + ₹ 4019 interest) at the end of 1 -year. Since you invest a fixed sum of money regularly in these fixed deposit types, the non-cumulative option is not available in this case. You can withdraw the interest along with the principal only at the end of the fixed deposit tenure, upon maturity.

Regular Income Fixed Deposits

As the name suggests, regular income fixed deposit types earn you a fixed return at regular intervals. They are standard fixed deposits where you can choose to withdraw the return quarterly or monthly. If you require regular income from your investment, these fixed deposits are an ideal choice.

Flexi Fixed Deposits Types

Flexi FDs offer the benefit of higher interest rates than fixed deposits and the convenience and flexibility of a savings account. They combine flexible FD tenure and competitive rates with the ability to withdraw the amount at any point in time.

Some banks offer the facility to put a limit on your savings account so that any excess amount is transferred to a Flexi FD, thus enabling you to earn higher interest on idle funds. For example, you may set a limit of ₹ 100,000 in your savings account so that any balance over ₹100,000 is swept into a Flexi fixed deposit.

Conclusion

Fixed deposits are indeed a great investment option if you are a risk-averse investor. From a wide variety of tenures to investing as per your needs, fixed deposits are indeed a great addition to your investment portfolio. Explore all the options wisely and choose the right one for you.

Happy Investing!