Fixed Deposit

A fixed deposit (FD) is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date . It may or may not require the creation of a separate account. It is known as a Term Deposit in the Canada, Australia, New Zealand and the US and as Bond in United Kingdom they are considered to be very safe investments. Term Deposits in India is used to denote a larger class of investments with varying levels of liquidity. 

What is Fixed Deposit?

The defining criteria for a Fixed Deposit is that the money cannot be withdrawn for the FD as against Recurring deposit or Demand deposit before maturity. Some banks may offer additional services to FD holders such as loans against FD certificates at competent interest rates. Its important to note that banks may offer lesser interest rates under uncertain economic conditions. The interest rate varies between 4 and 11 percent.The tenure of an FD can vary from 10, 15 or 45 days to 1.5 years and can be as high as 10 years.These investments are safer than Post Office Schemes as they are covered under Deposit Insurance & Credit Guarantee Scheme of India. They also offer Income tax and Wealth tax benefits.

A deposit held at a financial institution that has a fixed term. These are generally short-term with maturities ranging anywhere from a month to a few years. When a term deposit is purchased, the lender (the customer) understands that the money can only be withdrawn after the term has ended or by giving a predetermined number of days notice.

Fixed deposits are an extremely safe investment and are therefore very appealing to conservative, low-risk investors. By having the money tied up you'll generally get a higher rate with a term deposit compared with a demand deposit.

  • Public Bank fixed Deposits
  • Private Bank fixed Deposits
  • Corporate Companies fixed Deposits

The main features of fixed deposit account are as follows:

  • The main purpose of fixed deposit account is to enable the individuals to earn a higher rate of interest on their surplus funds (extra money).
  • The amount can be deposited only once. For further such deposits, separate accounts need to be opened.
  • The period of fixed deposits range between 15 days to 10 years.
  • A high interest rate is paid on fixed deposits. The rate of interest may vary as per amount, period and from bank to bank.
  • Withdrawals are not allowed. However, in case of emergency, banks allow to close the fixed account prior to maturity date. In such cases, the bank deducts 1% (deduction percentage many vary) from the interest payable as on that date.
  • The depositor is given a fixed deposit receipt, which depositor has to produce at the time of maturity. The deposit can be renewed for a further period.

The advantages of fixed deposit account are as follows:
  • Fixed deposit encourages savings habit for a longer period of time..
  • Fixed deposit account enables the depositor to earn a high interest rate.
  • The depositor can get loan facility from the bank.
  • On maturity the amount can be used to make purchases of assets.
  • The bank can get the funds for a longer period of time.
  • The bank can lend such funds for short term loans to businessmen.
  • Fixed deposits indirectly boost economic development of the country.
  • The bank can also invest such funds in profitable areas.


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