Fixed Deposits (FD): The Bedrock of Secure Investing
At ArthVeda, we understand that for many readers, financial peace of mind comes from knowing their capital is 100% safe while earning a guaranteed return. In the Indian financial landscape, the Fixed Deposit remains the most trusted instrument for risk-averse saving.
1. What is a Fixed Deposit (FD)?
A Fixed Deposit is a financial instrument where you deposit a lump sum amount with a bank for a specific tenure (ranging from 7 days to 10 years). In exchange, the bank provides a higher rate of interest than a standard savings account.
Key Benefits:
- Guaranteed Returns: Your interest rate is locked at the time of deposit; it remains unaffected by market volatility.
- Capital Security: Under the RBI’s DICGC scheme, deposits up to ₹5 Lakh (Principal + Interest) per bank are fully insured.
- Liquidity via Loans: Instead of breaking your FD during an emergency, you can avail of an Overdraft (Loan) for up to 90% of the FD value.
- Payout Flexibility: Choose between “Monthly Payouts” for regular income or “Cumulative” for long-term growth.
2. Types of Fixed Deposits
- Standard FD: The traditional deposit with flexible tenures (7 days to 10 years).
- Tax-Saving FD: Offers tax benefits under Section 80C (up to ₹1.5 Lakh), but comes with a mandatory 5-year lock-in period.
- Senior Citizen FD: Investors over 60 years of age typically receive a preferential rate, usually 0.50% to 0.75% higher than standard rates.
- Corporate FD: Issued by companies (e.g., Bajaj Finance). These offer higher interest rates but carry a slightly higher risk compared to bank FDs.
3. Maximizing Returns: Two Strategic Tricks
- FD Laddering: Instead of locking a large sum into a single FD, divide it into multiple FDs with different tenures (e.g., 1-year, 2-year, and 3-year FDs). This ensures liquidity every year and allows you to reinvest at potentially higher rates.
- Re-investment Plan: If you don’t need immediate income, choose the Cumulative option. This allows your interest to be reinvested, giving you the benefit of compounding.
4. FD vs. RD: Which One Suits You?
While both are secure, they serve different financial habits.
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
| Investment Mode | Lump Sum (One-time) | Monthly Installments |
| Best For | Those with idle surplus cash | Those saving from a monthly salary |
| Compounding | High (Interest earned on full sum from Day 1) | Moderate (Interest starts as you add money) |
| Minimum Entry | Usually ₹1,000 to ₹10,000 | Can start as low as ₹100/month |
5. How to Start an FD Online (Step-by-Step)
- Login: Open your bank’s mobile app (YONO, iMobile, etc.).
- Navigate: Go to the ‘Deposits’ or ‘Investments’ section.
- Select Type: Choose between Regular or Tax-Saver FD.
- Enter Details: Input the amount, tenure, and your preferred interest payout frequency.
- Nominee & Instructions: Add a nominee and set maturity instructions (e.g., “Credit to Account” or “Auto-Renew”).
- Confirm: Review the interest rate and confirm. Your FD receipt is generated instantly.
6. Important Checklist (The Fine Print)
- Premature Withdrawal: Breaking an FD before maturity usually incurs a penalty of 0.5% to 1% on the interest.
- TDS (Tax Deducted at Source): If your annual interest exceeds ₹40,000 (₹50,000 for senior citizens), the bank deducts 10% TDS.
- Form 15G/15H: If your total income is below the taxable limit, submit these forms to prevent the bank from deducting TDS.
Closing Insight from ArthVeda
“A Fixed Deposit is not designed to make you wealthy; it is designed to keep you wealthy and provide a safety net for emergencies.”