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A fixed deposit (FD) is an instrument through which you can grow a lumpsum over a fixed tenure at a fixed interest rate
13 August, 2024 | 20:18 IST

A fixed deposit (FD) is an instrument through which you can grow a lumpsum over a fixed tenure at a fixed interest rate. It is a safe investment option that guarantees consistent interest rates. It offers special interest rates for senior citizens, multiple interest payment options, and no market-related risks.

The interest rate remains unaffected by market fluctuations, and you get good returns on maturity, that is, after the lock-in period. You can choose to get your interest on a periodic basis, or at maturity. Usually, the defining criterion for an FD is that the money cannot be withdrawn before maturity, but you may withdraw it after paying a penalty.

Table of Contents

What is a fixed deposit?
Different categories of fixed deposits
FD Laddering is a way of investing
What is stand alone fixed deposit?
Things to keep in mind while investing in Tax-saving FDs
Summary

What is a fixed deposit?

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Different categories of fixed deposits

Types of fixed deposits include:

Standard term deposits: This is the most common type of FD available at all banks. You deposit a fixed amount of money for a specific tenure, and the bank pays you interest on it at regular intervals or at maturity. The interest rate is pre-determined by the bank and varies based on the tenure and amount invested.
Senior citizen fixed deposits: These are FDs designed specifically for senior citizens. They offer higher interest rates than standard FDs and are available to individuals aged 60 years and above.
Tax-saving FD: A Tax-Saving Fixed Deposit (FD) is a type of fixed deposit account that offers a tax deduction under Section 80C of the Income Tax Act, 1961 1. Any investor can claim a deduction of a maximum of Rs. 1.5 lakh per annum by investing in a tax-saving fixed deposit account. The lock-in period for this type of FD is 5 years, and the interest earned is taxable.

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FD Laddering is a way of investing

FD laddering is a way of investing in FDs in which instead of investing a lump sum amount in a single FD, you invest in multiple FDs with varying tenures.

For example, if you want to invest ₹1L in FD, instead of creating a single FD, you can invest in four FDs of ₹25,000 each for say 1yr, 2yr, 3yr and 4yr as tenures.

Also Read FD Laddering technique - Explained

Principal Amount	Tenure	Bank	Interest Rate	Interest Payout
₹25,000	1Y	Shivalik	8.55%	₹2,207.02
₹25,000	1Y	Shivalik	8.55%	₹2,207.02
₹25,000	1Y	Shivalik	8.55%	₹2,207.02
₹25,000	1Y	Shivalik	8.55%	₹2,207.02

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What is stand alone fixed deposit?

Fixed deposit is a type of investment scheme where an investor deposits a sum of money for a fixed period and earns interest on it. The interest rates on FDs are fixed and guaranteed, making them a low-risk investment option.

Things to keep in mind while investing in Tax-saving FDs

Here are different aspects that individuals need to check while booking their fixed deposit:

Interest rate: While booking a fixed deposit, individuals need to check and compare the tax-saving FD rate across several financial institutions. With a higher rate of interest, they can increase their earning potential significantly.
Time horizon for investment:Individuals may have different financial goals or sets of plans for their investments. For example, they may want to save and grow the fund for their child's education, or the marriage ceremony of their sons and daughters. Since it has a definite lock-in period of 5 years, they need to ensure that the planned events do not fall within this time frame.
Security rating: Individuals also should ideally check the security ratings of the tax-saving fixed deposits. Different credit agencies like CIBIL and ICRA provide safety ratings to help customers know how risky the fixed deposit account for a certain financial institution can be.

Summary

A fixed deposit (FD) is an instrument through which you can grow a lumpsum over a fixed tenure at a fixed interest rate. It is a safe investment option that guarantees consistent interest rates.

Disclaimer

This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.