What are the different types of FDs?

Fixed deposits have been a preferred investment destination for a long time. It is a safe and reliable investment vehicle where your funds are invested for a specified tenure, and you receive interest payouts on a predetermined basis. As these deposits are risk-free, as compared funds like equities, they have been a safe saving and investment avenue for scores of investors. Besides providing safety to the principal amount, FDs also offer guaranteed returns. It is no wonder then that along with conservative investors, fixed deposits accounts are now also being preferred by the investors who have a higher risk appetite. Apart from investing in marked-linked securities, investors with high-risk appetite often prefer to invest in fixed deposits for portfolio diversification. In a nutshell, FDs are among the best places for all investors as they are equipped with the dual benefits of safety and guaranteed returns.

Before investing in FDs, you must understand the types of deposits being offered by financial institutions. These include company deposits and bank deposits.

  • Bank deposits: These are usually offered by banks to customers who have an existing savings account. While some bank deposits provide additional features like deposit insurance of up to Rs 1 lakh on opening fixed deposit accounts, their rates of interest are usually lower than those provided by Non-Banking Finance Companies (NBFCs).

  • Company Deposits: These are offered by NBFCs with higher interest rates. You must, however, ensure that investments are only made in companies with adequate credit worthiness. On Finserv MARKETS, you can select fixed deposits of Bajaj Finance, which have good ratings from leading analytical companies like CRISIL and ICRA. Bajaj Finance Fixed Deposits has the highest stability rating of FAAA/stable by CRISIL and MAAA/stable by ICRA. In 2019, Bajaj Finance was assigned a long-term rating of ‘BBB-/Stable’ and a short-term rating of ‘A-3’ by S&P Global Ratings.

On the basis of interest payouts, there are two types of FDs, cumulative and non-cumulative.

  • Cumulative fixed deposits: Cumulative FDs are those types of deposits where the earned interest is only available to you on maturity. You cannot receive the interest amount on regular intervals. The crucial benefit of a cumulative FD is that it has a higher interest rate as compared to non-cumulative FDs. These are best suited for investors who do not need a regular interest payout, but would want more returns on their FDs. You can invest in a cumulative FD, which has a tenor ranging from 12 months to 60 months.

  • Non-cumulative fixed deposits: In the case of non-cumulative FDs, the financial institution pays you the interest earned on the principal amount at regular intervals. On Finserv MARKETS, you can choose the frequency of the interest payout at the time of application, which can be monthly, quarterly, half-yearly or annually. Here, the tenor for the FD ranges between 12 and 60 months. You must, however, note that the maturity amount decreases if the interest payout frequency is higher. But, the advantage of this FD is that you can receive regular interest payouts, to meet your regular expenses. These FDs are best suited for people like pensioners who need a regular income from interest payouts.

Though the interest earned on FDs is taxable as per your income slab, there is a special tax-saving FD where you can claim tax benefit. These types of FDs are known as tax-saving FDs.

  • Tax-saving fixed deposits: These FDs have a longer tenure of up to 5 years. The key benefit of this type of FD is that you can claim a tax deduction for income up to Rs 1.5 lakh in a given assessment period, under Section 80 C of the Income Tax Act. You must, however, remember that this type of FD comes with a lock-in period, and you cannot break the deposit or withdraw it prematurely.

There are also fixed deposits to cater to the unique financial requirements of special category of people like senior citizens and NRIs.

  • Senior citizen fixed deposits: This special fixed deposit is for people above 60 years of age. The key highlight of the scheme is that it provides a higher rate of interest as compared to other FDs, thus allowing the elderly to meet a wide range of financial requirements. For example, on Finserv MARKETS, senior citizens can invest in the Bajaj Finance Fixed Deposits, with the benefit of an interest rate that is 0.35% over and above the existing interest rate. Here, senior citizens can invest in tenures ranging from 12 months to 60 months with an interest rate of up to 8.95%.

  • Fixed deposits for NRIs: NRIs often consider investing in FDs back home as the investment is an FD is not only safe from market volatility, but also provides a higher rate of interest as compared to the interest from traditional savings accounts. For instance, Bajaj Finance Fixed Deposit for NRIs, available on Finserv MARKETS, provides a slew of benefits like high returns up to 8.95% along with flexible tenor options ranging from 12 months to 36 months. It also provides multi-deposit and easy renewal facilities. As an NRI, you can invest in this FD from your NRO account. Person of Indian origin (PIO) and Overseas Citizen of India (OCI) can also invest in this FD.

Apart from the above mentioned categories, there is the standard fixed deposit.

  • Standard/Regular fixed deposits: This is the most common of all FDs. Being a regular and uncomplicated form of investment; you have simply to invest your money for a certain predetermined period, for which a predetermined rate of interest is provided. Usually, you can deposit your amount in a period ranging from one year to 10 years. On Finserv MARKETS, you can invest as a new customer in the Bajaj Finance FD, and avail an interest rate of 8.60% for cumulative scheme tenors ranging from 36 to 60 months. The key highlights of a standard fixed deposit include the ease and convenience of investment, security of the principal amount, and a high interest rate..

Before investing in these FDs, you must consider certain key factors. These are:

  • Rate of interest being offered

  • Credibility of the financial institution

  • Tenure

  • Interest payout options

  • Charges on premature withdrawal

  • Facility of loan on the FD

  • Convenience features

Once you have made up your mind about the category of FD you want to invest in, you can easily open an account on Finserv MARKETS. Besides receiving attractive and assured rates of interest, you can choose the frequency at which you get it and also access all the account details online.

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