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What is a Term Deposit?

A term deposit is a secure, low-risk investment option to maximise earnings. Also known as a fixed deposit (FD), this helps you grow your funds over a chosen period. This is an investment avenue with a popular standing in the market.

 

When you open a term deposit account, you deposit a certain amount for a fixed tenor at a predetermined interest rate. This way, you earn interest on the amount invested. 

 

Apart from this, certain banks also provide insurance on deposits. As per the RBI, you get coverage up to ₹5 Lakhs, which includes the principal amount and interest earned. As such, term deposits are an excellent way to earn secured returns without the risk of market volatility. 

 

Here’s a brief overview of their features and benefits. 

Term Deposit Interest Rates

Term deposit interest rates in India are determined by various factors, such as the deposit duration, the amount invested, and the type of deposit. From an earnings POV, the longer you stay invested, the higher your returns.

 

While the investment amount plays a crucial factor in maximising your income earnings, know that the type of fixed deposit is also critical. When you opt for a payout at maturity, your returns are higher due to higher FD rates.

 

Likewise, FD rates may be slightly lower if you choose to get your interest paid to you periodically. This is because the issuer offers lower rates for non-cumulative FDs, and the power of compounding is best experienced with cumulative FDs. 

 

Hence, your term deposit interest rates vary depending on the factors mentioned above. Ideally, you should book a long-tenor FD with a payout at maturity to enjoy higher interest rates. 

 

Additionally, some financial institutions may offer higher rates on special tenors. Consider these factors and choose a lender offering attractive interest rates.

 

term deposit

How to Invest in a Term Deposit

Investing in a term deposit is simple and easy. All you need to do is choose a financial institution, select your FD duration and deposit amount, complete the form, and invest your money. 

 

Though the process is similar to opening a savings account, here is a quick snapshot of how to book for an FD.

  • Step 1: Research financial institutions offering attractive FD schemes

  • Step 2: Check if the terms offered are suitable to your goals

  • Step 3: Choose the tenor and amount you want to invest

  • Step 4: Complete the KYC processes and provide the deposit amount

In case you are an existing customer, the investing process becomes easier. Issuers may even have specialised solutions, such as apps, allowing you to invest from your smartphone. In just a few clicks, you can invest your money digitally. You can also make use of an online FD calculator to compute the returns you would generate before applying for a term deposit.

 

Furthermore, complete the FD opening form and collect the term deposit receipt after you book an FD. The FD receipt contains all particulars of the fixed deposit. 

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Features of a Term Deposit

Flexibility

The term deposit offers flexibility in investment tenor and payout frequency. You can choose the tenor that suits your investment goals and the frequency at which you want to receive the interest payout.

Assured Returns

You can get assured returns on your term deposit investments. As the rate of interest is fixed all through, you can be sure to get the promised returns at maturity. 

Pre-set Lock-in Period

The term deposit scheme has a pre-set lock-in period, which means that your funds are locked in for a set amount of time. After this period, you can withdraw your funds prematurely, albeit at a cost. 

Low Risk, Adequate Returns

Term deposit investments are low-risk financial tools offering adequate returns. They are considered a safe investment option, which can offer a haven for certain investors as there is virtually no risk involved. 

Types of Term Deposit

Various types of term deposit schemes cater to your diverse financial requirements. Here are a few of them:

  • Cumulative and Non-Cumulative Deposits: Cumulative term deposits offer compounded earnings on the principal amount, as the total amount is paid at the end of the investment tenor. Non-cumulative term deposits, on the other hand, provide periodic interest payouts, such as monthly, quarterly, half-yearly, or yearly.

  • Sweep-in Facility Term Deposit: This deposit scheme allows you to link your term deposit account with a savings account. The excess funds in your savings account are automatically transferred to your account, thereby increasing your interest earnings.
  • Short-term and Long-term Deposits: Short-term deposits typically have an investment tenor of up to 12 months, while long-term deposits have tenors ranging from 12 months to 10 years.
  • Senior Citizen Term Deposits: These deposits are designed specifically for senior citizens and offer higher interest rates than regular term deposits.
  • Special Deposit Schemes for Children: These deposit schemes help parents save for their children's education or other expenses. They offer attractive interest rates and flexible investment tenors.
  • Post Office Time Deposit: This government-backed deposit scheme comes with tenor options ranging from 12 to 60 months.
  • Tax-saver Term Deposits: These deposits offer tax benefits under Section 80C of the Income Tax Act, 1961. There is a lock-in period of 5 years, and premature withdrawals are not allowed. The maximum limit for you to enjoy tax benefits is ₹1.5 Lakhs per annum.

Remember that in a term deposit, tax is levied on your interest earnings. However, you can get an exemption by submitting Form 15G or 15H, when booking your deposit. Knowing the taxation on interest is essential as you can plan your taxes accordingly.

 

However, to avoid term deposit taxation, simply invest in a tax-saver term deposit and enjoy tax benefits. 

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FD Rates Offered by Partners on Bajaj Markets

The interest rate is one of the key factors that decide your returns. The higher the interest rate, the higher your returns. With issuers across the market offering competitive FD rates, selecting a particular financial institution may be difficult.

For some of the best offers, invest on Bajaj Markets. The digitised platform allows you to compare term deposit interest rates across issuers, and invest online with ease. Here are the FD rates on offer from partner issuers. 

For Non-Senior Citizen investors

Issuer

FD Rates (% p.a.)

Bajaj Finance

8.35%

PNB Housing

7.50%

Mahindra Finance

7.75%

AU Small Finance Bank

8.00%

YES Bank

7.75%

For Senior Citizen investors

Issuer

FD Rates (% p.a.)

Bajaj Finance

8.60%

PNB Housing

7.75%

Mahindra Finance

8.00%

AU Small Finance Bank

8.50%

YES Bank

8.25%

Disclaimer: These fixed deposit interest rates are subject to change as per the issuer’s internal policies. 

Advantages of Term Deposit

Term deposits are popular investment options due to their low-risk nature and fixed returns. Here are some of the benefits of term deposits

  • Easy Liquidation: Term deposits are also easy to liquidate. In case of any emergency or financial need, you can quickly withdraw funds by liquidating your FD. Note that the issuer may charge a small penalty for premature withdrawal.

  • Assured Rate of Return: The interest rate on term deposits is fixed for the entire tenor of the deposit, which means that you can know exactly how much you will earn at maturity. 

  • Flexible Tenor: Flexible tenor options, typically ranging from a few days to several years allows you to choose the term that best suits your investment goals and objectives.

  • Loans Against Fixed Deposit: One of the lesser-known advantages of term deposits is that they can be used as collateral for loans. Most banks and financial institutions offer loans against fixed deposits, with interest rates lower than regular personal loans. 

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How to Close a Term Deposit Account

Closing a term deposit account is a simple process. Here is the process to close the account:

  • Check the terms and conditions of the term deposit to determine if there are any penalties for early withdrawal

  • Notify the issuer when you plan to close your FD

  • Provide the FD details to the bank

  • Sign the withdrawal form

  • Receive the funds

  • Verify if you have received the right maturity amount along with interest earnings

 

Alternatively, you may also visit the issuer’s website and close your term deposit online.

How do Term Deposits Work for the Bank?

Term deposits are a source of funding for banks where you deposit a fixed amount of money for a specific period at a fixed interest rate. The bank uses these deposits to fund its lending activities and earn interest. 

 

In return, you receive a fixed interest rate on your deposit at regular intervals or maturity, depending on the type of FD you choose.

Conclusion

Now that you are familiar with the features and types of term deposits, compare FD schemes across issuers before investing in a specific plan. Choose attractive FD rates and accumulate wealth passively over a specified period. To invest with some of the top issuers in India, visit Bajaj Markets.

FAQs

A term deposit, or fixed deposit (FD), is an investment option offered by banks and other financial institutions in India. You can deposit a lump sum with a bank or financial institution for a specific period ranging from a few months to several years.

The financial institution pays you a fixed interest rate on the deposit, which remains constant throughout the tenor of the deposit. At the end of the term, you receive your initial deposit amount and the interest earned.

The minimum amount required to invest in a term deposit in India varies from bank to bank. Most banks have a minimum deposit requirement of around ₹1,000, while a few others insist on a minimum amount of ₹10,000.

Yes, you can withdraw your money from a term deposit before maturity. However, you may be subject to penalties, which can vary depending on the financial institution. Most issuers levy 0.5%-1% penalty for premature withdrawals.

Yes, you can reinvest your term deposit once it matures. Most financial institutions offer an option to renew your deposit for another term at the prevailing interest rate.

Interest income from Fixed Deposits is fully taxable. You can add it to your total income and get taxed at slab rates applicable to your total income. You can then see it under the head ‘Income from Other Sources’ in your Income Tax Return.

Foreclosure charges : No additional charges though customer has to be pay the interest applicable on the outstanding amount

Disbursal Time: 5 days

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