7 different types of fixed deposits in banking in India
A fixed deposit is a safe way to lock your money in secure hands for a set period, earning guaranteed interest, often higher than savings accounts with no market risks. Thus, check out 7 different types of FD in banking to wisely invest in it.
A fixed deposit (FD) is an easy and secure way to invest money with a bank. It works in this way - you deposit a lump sum of money for a fixed period and in return bank pays you interest. The interest rate is agreed upon when you open the FD and it doesn’t change, which means your returns are guaranteed. At the time of maturity period, you will get your invested amount back along with interest. However, choosing the right type of fixed deposit is important to help you plan your savings to achieve your investment goals.
Therefore, check out the 7 different types of FDs you can invest in.
Regular fixed deposits
Investors who want to earn a steady return on their savings, opt for regular FD. A regular fixed deposit (FD) is a savings option where you deposit a lump sum with a bank for a specified period at a fixed interest rate. The interest may be paid out monthly, quarterly, half yearly, or annually depending on the terms of the scheme. It offers guaranteed returns without any exposure to market risks, making it a preferred choice for risk-averse individuals.
Tax saver fixed deposits
A tax saver fixed deposit is a special type of FD that offers tax benefits under Section 80C of the Income Tax Act in India. You can invest up to ₹1.5 lakh per financial year to reduce your taxable income. These FDs have a mandatory lock-in period of five years, encouraging long-term savings. However, the pre-mature withdrawal can lead to reversal of tax benefits. They provide fixed interest rates, typically higher than regular savings accounts, and the interest earned is taxable.
Digital fixed deposits
Digital fixed deposits allow investors to effortlessly open and manage FD online, without any hassle to visit the banks. The whole process from KYC to deposit and withdrawal is available online. Customers can easily monitor their investments through banking apps and they can open their FD online without any physical documentation.
Reinvestment fixed deposits
The reinvestment fixed deposits also known as cumulative FDs are a kind of fixed deposit where the interest earned is added to the principal amount at regular intervals instead of being paid out. This leads to a higher maturity amount compared to regular FDs that pay out interest periodically. Long-term investors who seek to maximize their savings without immediate payouts, opt for it.
Senior citizen fixed deposits
The senior citizen FD is only for investors who are older than 60 years. The interest rate on these fixed deposits ranges approximately from 3.00% to 8.75 per annum (depending on the bank) which is higher than standard FDs, and the tenure can range from 7 days to 10 years. Seniors can opt for monthly, quarterly, or annual interest payouts, providing a reliable income stream during retirement.
Fixed deposit plus
Fixed deposit plus gives higher rate of interest compared to regular FDs, the minimum amount of investment in these deposits is higher. The higher the investment, the higher the rewards. Plus, the investors have the option to choose between simple interest and compound interest.
Auto fixed deposits
Auto FD comes with a lock-in period and if you withdraw before the maturity period you will have to pay a penalty. It gives investors the convenience of savings accounts and interest rates on deposits. In auto fixed deposits, one can set a certain threshold amount in their savings account. The rest of the amount automatically goes into the FD, thereby earning a higher interest rate.