A fixed deposit (FD) is an investment product offered by public and private banks and non-bank financial companies (NBFCs). You can put a lump sum of money into an FD in exchange for interest and the principal amount at maturity. The period during which you invest in your maturity period, during which you are unable to withdraw before it expires. You must pay the penalty and earn a lesser interest rate if you withdraw before maturity. With FD rates in India becoming attractive every year, it is the best time to invest in FD.
The interest rate on a fixed deposit varies from one bank to the next. Furthermore, the interest rate is higher than a savings bank account. The interest on an FD is paid to an investor either at regular intervals or the maturity of the FD, depending on the investor’s preference. You will receive the principal amount and the compound interest on your investment when it matures. It is unnecessary to have a separate bank account to invest in a fixed deposit account.
How Does a Fixed Deposit Account Work?
When you invest in a fixed deposit, your money is locked in for the deposit duration. You will undoubtedly receive interest on such a principal amount, which will be credited to your FD account according to the payout duration. You can accept payments monthly, quarterly, half-yearly, or yearly. As a result, the interest rate is applied to the investment amount and compounded monthly, quarterly, half-yearly, or annually, depending on the circumstances.
You can either withdraw the matured money or reinvest it in the same or a different type of FD when it matures. Alternatively, you can set up an auto-reinvest maturity instruction with your bank or NBFC, and the maturity amount can be reinvested at maturity. Before the maturity date, you can easily adjust the maturity instruction.
Best FD Rates in India
| Financial Institutions | FD Rates in India (% p.a.) | FD Rates in India (Senior Citizen) (% p.a.) |
| Induslnd Bank | 2.75 – 6.5 | 3.25 – 7.00 |
| Yes Bank | 3.25 – 6.25 | 3.5 – 7.00 |
| Bajaj Finance Ltd. | 5.65 – 7.1 | 5.9 – 7.35 |
| HDFC | 5.5 – 6.7 | 5.5 – 6.7 |
| Bandhan Bank | 3.0 – 6.25 | 3.75 – 7.0 |
| LIC Housing Finance | 5.15 – 6 | 5.14 – 6.25 |
| Axis Bank | 2.5 – 5.75 | 2.5 – 6.5 |
| Kotak Mahindra | 2.5 – 5.5 | 3.0 – 6.0 |
Features of a Fixed Deposit
- In an FD account, one can make the deposit only once. You will need to open a new FD scheme or account for any further investments.
- Even if you opt for a Systematic Deposit Plan, every monthly investment acts as a separate FD.
- The duration varies from seven days to ten years. You can choose between days, months, or years for maturity.
- The minimum investment amount varies from bank to bank and NBFC to NBFC. Typically, the sum fluctuates between Rs. 1,000 and Rs 5,000 depending on the type of FD. The maximum amount of investment, however, is unrestricted.
- The interest rate on an FD usually is higher than the rate on a savings account.
- The interest rate is set during the investment and does not alter. The fixed interest rate on any FD is unaffected by market changes. FD rates in India are becoming lucrative day by day.
- You can invest in a fixed payout or payout the interest earned at maturity. The interest will be credited to your savings account monthly, quarterly, half-yearly, or yearly, depending on the payout option you choose.
- Because a fixed deposit is designed to be locked in for a set time, any early withdrawal will result in a penalty and a loss of interest. The penalty varies depending on the bank/NBFC.
- In an emergency, you can take out a loan against your fixed deposit. Such a loan will have a lower interest rate than other loans. A loan against a fixed deposit is a secured loan with the FD as security.
- You can now apply for a credit card using your FD as collateral. Furthermore, banks offer a safe deposit box with an FD as the primary requirement.
- You can add a nominee to your FD to ensure that the maturity funds are distributed to your nominee in the event of your death.