What Is Fixed Deposit FD and How to start

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A Fixed Deposit (FD) is an investment option in which you deposit a fixed amount of money with a bank or financial institution for a fixed period of time, earning a fixed interest rate.
This method is popular among those seeking safe and stable returns. FDs are a good option for those who are risk-averse.

How does an FD work?

When you open an FD with a bank, you deposit your money for a fixed period (such as 6 months, 3 years, or 5 years).
During this period, your money remains with the bank and the bank pays you interest.
At the end of the period (called the maturity period), you get back both the principal and interest.

For example:
If you invest ₹1,00,000 in an FD for 5 years at 7% annual interest, you will receive approximately ₹1,40,000 back after 5 years.

Types of Fixed Deposits

  1. Regular Fixed Deposit – In this, you deposit a lump sum amount and get it back with interest after a fixed period.
  2. Tax Saver Fixed Deposit – This investment is tax-free, but has a lock-in period of 5 years.
  3. Cumulative FD – In this, interest is added every period and the entire amount is received at the end.
  4. Non-Cumulative FD – In this, interest is credited to your account on a monthly, quarterly, or annual basis.

Benefits of Fixed Deposit

Safe Investment – ​​It does not involve market risk, making it a safe investment option.

Fixed Returns – The interest rate is fixed, so you know in advance how much you will earn.

Tax Benefits – Tax Saver FDs are eligible for deductions under Section 80C of the Income Tax Act.

Loan Facility – You can also take a loan against your FD if needed.

Flexibility – Options for different tenures and interest rates are available.

Some Limitations of Fixed Deposits

Interest rates are generally lower than those of the stock market or mutual funds.

You may have to pay a penalty if you break an FD midway.

FD returns often prove to be lower than inflation.

How are interest rates determined on FDs?

FD interest rates depend on several factors—

RBI’s repo rate

Bank policies

Investment period

Additional interest benefits for senior citizens

Generally, senior citizens receive 0.25% to 0.50% more interest than the normal rate.

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