How many types of Fixed Deposits Exists?
A fixed deposit is a scheme in which you deposit money for a fixed period of time known as tenure. Unlike a regular savings deposit, you can not withdraw money from an FD under normal conditions. However, you get a much higher rate of interest on an FD as compared to a regular 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 types of fixed deposit 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 period. Till then the interest keeps getting compounded.
Non-cumulative FD – In a non-cumulative FD, you have the option of withdrawing 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 of FD is geared towards investors whose priority is tax saving 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 basis points higher on this FD as compared to other types of FDs.
- Tenure is more flexible as compared to other types of FD.
4. Flexi FD – This is a special type of FD that is linked to your savings account so that it offers a great deal of flexibility to the investor. Its features are:
- Flexible tenure
- Facility for premature withdrawal
5. Corporate FDs – These types of FDs are usually offered by non-banking financial companies (NBFCs). They offer competitive rates of interest and varying options for the tenure of the FD.
6. Fixed Deposits for NRIs– There are several types of term deposit for non-resident Indians (NRIs) that offer a host of 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 these 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%.
As you can see, different types of FDs have different features, and even offer different interest rates and tax-benefits. If you are interested in an FD, you can check for best interest rates on Finserv MARKETS.