Fixed Deposits are one of the most popular investment instruments in India. They are easy to open and offer assured returns to depositors. FDs can also be a good choice if you do not like to take risks when investing. However, before you open an FD, you need to know its various types. Let us explore them.
Overview of an FD
An FD is an investment option banks offer. This Term Deposit lets you deposit a lump sum for a fixed tenure. When opening the FD, you can choose a tenure based on your needs. Usually, FD tenures vary from seven days to 10 years. In return for depositing the sum in the FD, you earn interest on the invested amount at a fixed rate.
Banks decide the FD interest rates. Hence, they may be different for different banks. They may also differ according to the tenure you pick. However, the rate is decided when opening the FD and remains the same throughout the FD term.
Types of FDs
When opening an FD to grow your money, you can choose from various types:
- Tax-Saving FDs
By opting for Tax-Saving FDs, you can save up to Rs. 1.5 lakh in income tax benefits u/s 80C of the Indian Tax Act. However, these FDs have a five-year lock-in period, and you cannot liquidate them before maturity.
- Cumulative FDs
When you opt for Cumulative FDs, the interest you earn gets added to the principal amount. This lets you enjoy the benefit of compounding. However, you receive the interest earned only at maturity. Cumulative FDs are usually valuable for customers looking for long-term investments.
- Non-Cumulative FDs
When you deposit a lump sum in a Non-Cumulative FD, the interest you earn on the principal does not accumulate. Instead, it is paid to you regularly, i.e., annually, quarterly, half-yearly, or monthly, depending on the interest payout frequency you choose. You can select the payout frequency when opening the FD Account. A Non-Cumulative Fixed Deposit can be a good investment choice if you want passive income.
- Flexi FDs
Flexi FDs offer the advantage of a traditional FD and a Demand Deposit. When you opt for this FD, the investment is connected to your Savings Account. You can select a limit for your Savings Account, and any excess amount gets transferred to the FD. This lets you enjoy the liquidity a Savings Account offers, along with the benefit of a better interest rate.
- Senior Citizen FDs
This scheme allows citizens who are 60 years of age or older to open an FD with the bank. Senior Citizen FDs usually have a higher interest rate, and you can choose from different tenures offered by your bank.
Conclusion
Today, you can choose from various types when opening an FD. So, understand your needs and pick one that matches them.
