Certificates of Deposit, or CDs for short, are a money market financial asset. Certificates of Deposit are governed by the Reserve Bank of India (RBI) regulations. A Bank CD acts as an agreement between you, the depositor and the bank whereby the bank pays you interest on a predetermined amount of money for a specific time period. This amount can be redeemed upon the expiry of this time period, but not before the tenure is up.
People prefer to invest in bank CDs because the rates are often higher than what you would normally get on the funds in your savings account.
Fixed Deposits are another type of financial instrument issued by banks. Fixed deposits are so popular because they are a very low-risk investment with a fixed rate of interest. Fixed deposits allow you to invest your surplus funds, even as low as ₹1000 in some banks, and earn a fixed rate of interest on the funds, for a specific period of time.
On the face of it, both CDs and FDs sound similar. But the difference between certificate of deposit and fixed deposit is in the details. Here are the parameters to assess Certificates of Deposit Vs Fixed Deposits
Details |
Certificate of Deposit |
Fixed Deposit |
Duration |
Short-term investment instruments up to 12 months that are subject to RBI regulations |
Tenors can range from 7 days to 10 years, depending on specific banks |
Minimum Amount |
The minimum investment amount in the case of CDs is ₹1 lakh |
For FDs, the minimum amount can be as low as ₹1000 |
Collateral |
Cannot be used to borrow money by pledging the CDs |
Loans can be borrowed against an existing FD |
Assured Returns: Fixed deposits are the safest investment options as they provide you with guaranteed returns unlike market-led returns. You get the interest rates that were agreed upon at the time of opening your FD.
Return on Investment: The FD returns are compounded periodically. You can select the period of your choice which is monthly, quarterly or annually. NBFCs provide higher returns than banks.
Higher Returns for Senior Citizens: Senior citizens are provided with a slightly higher interest rate than non-senior citizens
Flexible Tenure: You can choose the tenure of your choice. The tenure for FDs in India can range from 7 days to 10 years.
Loan Against FD: You can avail a loan against your fixed deposit. The interest rate of the loans vary from bank to bank. You can get 75% to 90% of your fixed deposit amount as loans.
Credit Card Against FD: Credit card can be availed against a FD. These types of credit cards are known as secured credit cards.The FD amount decides the credit limit of your credit card. So, the higher your FD amount, the higher will be your credit card limit.
TDS: As per the income tax act, 1961, tax on the interest income deducted at source. If your income is non taxable you can avoid TDS by using form 15G and 15H if you are a senior citizen.
Withdrawal: You can withdraw your FD amount after the maturity period. Some of the fixed deposits come with a lock-in period, during which withdrawals cannot be made. However, partial or full withdrawals can be made in a few financial institutions with penalty.
Your choice between a Certificate of Deposit Vs Fixed Deposits is defined by your end goal. If you like stability & predictability in your financial portfolio, you should consider Fixed Deposits. They come with a fixed rate of interest, for a specified period of time, and also allow you to avail of a loan to meet your fund crunch. The Bajaj Finance FD offered on Bajaj Markets offers a lucrative interest rate of up to 8.60%, with a flexible tenor and an easy online application process.
If you don’t mind a little risk to earn more returns, CDs will be a good fit. In fact, they’re a hassle-free way of investing in the short to medium term.
Fixed Deposit and Other Investment Comparisons |
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A Fixed deposit is a financial instrument that allows you to deposit a principal amount of money with your bank to earn a fixed, assured rate of interest on the funds.
Yes, if you are a resident of India, you can invest in a CD.
A certificate of deposit is a negotiable money market instrument issued by authorized banks and financial institutions, under the regulation of the RBI.
A Certificate of Deposit issued by the commercial banks is usually a short-term investment, with a maturity period ranging from 7 days to 1 year. In the case of CDs issued by financial institutions, it ranges from 1 year to 3 years
The main differences between a CD and an FD lie in their maturity tenure, the minimum amount needed to invest, and their use as collateral for a loan.