Fixed deposits are a form of investment best suited for risk-free investors. It allows them to invest their money for a fixed period at a fixed interest rate. Fixed deposit interest rates are predefined based on the term. The interest rates are slightly higher for senior citizens, and the percentage is discretionary to the financial institution.
Once depositors meet fixed deposit eligibility criteria and submit the documents required for a fixed deposit, their money gets locked in for a set tenure.
If, for any reason, depositors need to surrender the FD before the lock-in period concludes, a premature withdrawal penalty is charged, and they lose out on some interest. For an HFC like PNB Housing Finance, the lock-in period is 3 months.
However, different types of fixed deposits have different specifications. To make the most out of your investment, let's understand the types of FDs in India, what they mean for your financial goals, and how to choose the best FD plans.
Different Types of Fixed Deposits
There are various types of fixed deposits offered by financial institutions. Here are a few common types of FDs in India:
1. Standard Fixed Deposits
Almost every financial institution offers this type of FD to its customers. When depositors opt for a standard fixed deposit, their money is invested for a defined tenure at a pre-determined interest rate.
Common features include:
- Fixed term ranging from seven days to ten years. For FDs offered by housing finance companies, the tenure ranges between 1 year to 10 years.
- Pre-defined rate of interest that is not subject to change by market fluctuations
- Higher FD interest rate as compared to a savings account
2. Tax-Saving Fixed Deposit (Only Applicable for Banks & Post Office FDs)
A tax-saving fixed deposit requires depositors to keep their money invested for at least five years. Investments in a tax-saving FD can help you claim a deduction of up to ₹1.5 lakh per financial year under Section 80C of the Income Tax Act, 1961. The interest earned on this FD is eligible for a tax deduction.
Common features are:
- Minimum five-year lock-in period
- The principal qualifies for a tax deduction, up to ₹1.5 lakh per year (interest is taxable).
- Only lump-sum deposits can be made
Must Read: How to Open Fixed Deposit Account Online?
3. Special Fixed Deposits
These FDs are called ‘special’ because they are available for special tenures. This period can be any random number of days (offered in Banks), such as 290 or 390. Due to the higher interest rates on special FDs, they are a popular investment option. The features of special fixed deposits are:
- Investment for a specific number of days
- Money cannot be withdrawn until the tenure ends.
- Special Fixed Deposit interest rates are higher than Standard Fixed Deposit interest rates
4. Cumulative Fixed Deposits
The interest on these FDs gets compounded as per the chosen tenure. At maturity, interest is added to the investment amount. Cumulative fixed deposits automatically reinvest the interest earned, leading to higher returns over time. Your funds stay locked until maturity, ensuring steady growth, although the accrued interest is taxable.
5. Non-Cumulative Fixed Deposit
As opposed to cumulative FDs, the interest here is paid at regular intervals.
Some features are:
- The interest is paid according to the frequency set at the time of opening the FD – this could be yearly, bi-annually, quarterly or monthly.
- This type of investment is more suited for retired people or pensioners looking to get a regular inflow of funds.
6. Senior Citizen’s Fixed Deposit
As the name suggests, this FD is exclusively for senior citizens over the age of 60.
The features of the senior citizen’s fixed deposit are:
- The interest rate for senior citizens is around 0.20% to 0.30% higher than standard FD interest rates.
- Flexibility in terms of tenure and interest payout options. You can choose from a range of deposit durations from short to long-term and the option to receive interest as cumulative growth or in regular payouts.
How to Choose the Best FD Plan?
To choose the most suitable fixed deposit, depositors must evaluate certain aspects:
1. Term of the Fixed Deposit
FD interest rates vary with tenure; longer the tenure, higher the interest rate. FDs with longer terms may appear to be better, but since the deposited money is locked up for longer periods, the investor’s liquidity may be hampered. Thus, opting for an FD that offers tenure flexibility based on the depositor’s financial situation and goals is imperative.
2. Premature Withdrawal Terms
Before choosing a specific type of FD, evaluating the terms of premature withdrawal and penalties is advisable. Investors should be free to liquidate their FD without having to pay a very high price for the same.
At PNB Housing, the minimum lock-in period for all types of fixed deposits is 3 months. If a deposit is withdrawn after 3 months but before 6 months, individual depositors will receive a maximum interest of 4% per annum, while other categories (such as (non-individual depositors, such as corporate accounts, partnerships, or Hindu Undivided Families (HUFs)) will receive no interest. For withdrawals made after 6 months but before maturity, the interest payable will be 1% lower than the applicable rate for the completed tenure. If no specific rate has been assigned for the period that the deposit has remained active, the interest will be 2% lower than the minimum rate at which deposits are accepted.
Must Read: Everything You Need to Know About Term Deposit
3. Rate of Interest
Choose a financial institution that offers competitive FD interest rates. At PNB Housing, the fixed deposit interest rate starts at 7.45% and goes up to 8.00% per annum, and it is applicable for a 30-month tenure only. Investors can benefit from stable returns with guaranteed interest, making it a secure investment option. Rates may vary based on the deposit amount and tenure.
4. Additional Benefits
Don’t just go by the interest rates; look for some added benefits in different types of fixed deposits. These include a loan facility against fixed deposits, an overdraft facility for high liquidity, and other features.
There are various investment options available, yet fixed deposits continue to be a favoured choice amongst investors. This is because the safe and secure nature of FDs guarantees fixed returns and stable growth.
Wrapping Up
Fixed Deposits are a secure and stable investment option, offering guaranteed returns and financial security. With various types of fixed deposit options available, investors can choose an FD that aligns with their liquidity needs and financial goals. PNB Housing offers competitive interest rates and flexible withdrawal terms, making it an ideal choice for risk-free investors seeking steady growth and stability.
FAQs
How does a Tax-Saving Fixed Deposit work?
A Tax-Saving Fixed Deposit allows investors to claim tax deductions up to ₹1.5 lakh under Section 80C of the Income Tax Act. It has a 5-year lock-in period, meaning premature withdrawals and loans are not allowed. Interest earned is taxable as per the depositor’s income tax slab.
How can I choose the right Fixed Deposit for my financial goals?
To choose the right FD, consider interest rates, tenure, premature withdrawal terms, and additional benefits like a loan against FD . Assess liquidity needs before locking in funds. Longer tenures offer higher returns, while non-cumulative FDs suit retirees needing regular interest payouts. Compare financial institutions for competitive rates.
What are the different types of fixed deposits available in India?
Common types of fixed deposit include:
- Standard Fixed Deposits
- Tax-saving Fixed Deposits
- Special Fixed Deposits
- Cumulative Fixed Deposits
- Non-cumulative Fixed Deposits
- Senior Citizens’ Fixed Deposits
Each option offers different features, payout styles, and a unique fixed deposit rate of return depending on tenure and institution.
Which is the best fixed deposit option for investors?
The best fixed deposit depends on an investor’s goals. Those seeking long-term growth prefer cumulative FDs, while retirees may choose non-cumulative FDs for regular income. Special FDs offer higher rates for specific tenures. Choosing an institution with the best fixed deposit interest rates ensures stable and predictable returns.
What fixed deposit interest rates are available for senior citizens?
FD interest rates for senior citizens are generally 0.20% to 0.30% higher than standard rates. These deposits offer flexible tenure options and payout choices, including monthly or quarterly interest. Higher returns make senior citizen FDs attractive for stable income and reliable growth, especially when aiming for the best risk-free returns.
What are tax-free and tax-saving fixed deposits?
A tax free fixed deposit and tax-saving FD offers deductions of up to ₹1.5 lakh per year under Section 80C. These deposits have a mandatory five-year lock-in period. Only the principal amount qualifies for tax benefits, while the interest remains taxable. They are ideal for investors seeking secure, long-term savings.
