How many types of Fixed Deposits Exists?
A fixed deposit is a scheme in which you deposit money for a fixed period, known as tenure. Unlike a regular savings deposit, you can not withdraw cash from an FD under normal conditions. However, an FD has a much higher interest rate than a standard savings account. This makes FDs a popular investment choice for many people as they prefer its security over riskier asset classes such as equities and real estate.
Types of Fixed Deposits
There are many; however, all FDs fall into one of two categories based on the mode of payout you opt for:
Cumulative FD – In a cumulative FD, you only withdraw your interest at the end of the term. Till then, the interest keeps getting compounded.
Non-cumulative FD – In a non-cumulative FD, you can withdraw the payout at regular intervals, either quarterly, 6-monthly or annually. The interest rate is usually a little less than in the case of cumulative FD.
With these two distinctions in mind, we now look at the various types of FD:
1. Standard FD – This is the most common type of term deposit. It is available in most banks. The tenure can vary from 7 days to 10 years.
2. Tax-saving FD – This type is geared towards investors prioritizing tax savings rather than growing their principal amount. Its features are:
- Tax exemption of up to Rs. 1.5 Lakhs a year.
- A minimum lock-in period of 5 years.
- Investments are allowed only through a one-time lump sum.
3. Senior Citizen FD – This type of FD is only for those aged 60 years or above. Their main features are:
- The interest rate is often a few base points higher on this FD than on other FDs.
- Tenure is more flexible as compared to other .
4. Flexi FD – This particular type of FD linked to your savings account offers the investor a great deal of flexibility. Its features are:
- Flexible tenure
- Facility for premature withdrawal
6. Fixed Deposits for NRIs– Severaldeposits for non-resident Indians (NRIs) offer various features specially tailored to the needs of those whose earnings are primarily in foreign currency. Two common types of FDs for NRIs are:
- NRE FD – Non-resident External FDs are suited for those NRIs who earn in foreign currency and wish to invest in an Indian bank account. The interest on NRE FDs is tax-free. However, they are subject to exchange rate fluctuations.
- NRO FD – Non-resident Ordinary FDs are meant for those NRIs who wish to invest their savings in Indian rupees in India. NRO accounts are taxed at 30%.