16 SEPTEMBER, 2019

A fixed deposit has historically been the most attractive investment option for Indians. This is because fixed deposits usually offer a higher rate of interest on investment than any savings bank account in India.

What is a fixed deposit?

Fixed deposits (FDs) hold money for a fixed period of time, which upon maturity is returned to the investor in principal and with the interest earned.
The rate of interest is mostly predetermined and fixed in FDs. There is also an option today for investors to opt for flexible interest rates, though only a select few financial institutions offer its investors this option.
Fixed deposits generally have a lock-in period and an investor cannot withdraw the money deposit before this period is over. If, due to unforeseen circumstances the investor needs to withdraw, the money, he will need to break his fixed deposit. On breaking the fixed deposit, the investor becomes liable for a small fine levied on the interest rate.

Types of fixed deposits:

  • Standard fixed deposit: Almost every bank in India offers the standard fixed deposit to its customers. A standard fixed deposit requires an investor to invest his money for a fixed period of time, at a predetermined interest rate. Standard fixed deposit tenures vary from 7 days to 10 years. This is the most popular FD option chosen by investors.
  • Special Fixed Deposit: Special Fixed Deposits are ‘special’ because they are usually offered for a special time period. A special time period can be anything, like 290 days or 390 days, etc. Special FDs offer a higher interest rate and are a popular choice among various investors.
  • Tax saving Fixed Deposit: Tax saving fixed deposits, unlike standard fixed deposits, cannot be booked for less than a period of 5 years. The amount invested is exempt from tax under section 80C, but the interest generated from the FD is liable to be taxed.  
  • Floating Fixed Deposit: Not every bank in India offers its investors the option of a flexible interest rate. The rate changes quarterly or yearly and the investors can avail the benefits of a changing interest rate.
    The change in the rate of interest is determined by RBI guidelines.
    Fixed deposits have been a very attractive mode of investment for Indians over the years because of the security of the principal amount and the steady growth of the money invested besides assured rate of interest . It also gives investors a regular source of income through interest, which they can either claim or reinvest. With banks offering better interest rates to its investors, popularity of fixed deposits will only increase with time.


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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.