Fixed Deposits Explained: A Simple Guide for Beginners

A fixed deposit (FD) is one of the most popular options in Indian households as it is secure and has the lowest risk. If you have extra funds available or wish to grow your savings without any risk, this is an ideal choice. 

Funds readily available are easily used. Unless you have placed them in an account out of quick access, you may end up spending them. That’s where FDs come into play. Thus, you can better explain fixed deposits as a savings instrument rather than an investment.

Read on to know the definition of a fixed deposit account, its types, its working and more. 

What are Fixed Deposits?

An FD is a financial instrument that banks and financial institutions offer. It is an effective way to grow your money without subjecting it to market risks. It ensures you earn a predictable profit by the end of the tenure. 

How Does a Fixed Deposit Work?

To better understand what is a fixed deposit, you must know how it works.

• Investment

You deposit a lump sum amount for a fixed tenure, ranging from a few months to several years.

• Interest Rate

The bank or NBFC offers a predetermined interest rate for the entire tenure, typically higher than regular savings accounts.

• Tenure Options

You can choose the tenure based on your financial goals ranging from 7 days to 10 years.

• Interest Payout

You may receive the interest payments at regular intervals (monthly, quarterly or annually) or ask the bank to compound it and get it when the FD matures. 

• Maturity

At the end of the tenure, you will receive your initial investment plus the interest earned.

• Premature Withdrawal

You have the option to withdraw your funds before maturity, but it may incur a penalty and affect the interest rate.

• Tax Implications

Interest generated on FDs is taxable as per your income tax slab and TDS (Tax Deducted at Source) may apply if it exceeds a certain limit.  

Also Read: Difference Between Callable And Non-callable FD

Types of FDs

Issuers offer various options to meet different financial needs. Whether you seek security, tax benefits, or convenience, there is an FD for you. Here are the key features that better explain fixed deposit types:

Tax-Saver FDs

• These FDs come with a mandatory lock-in period
• They provide tax deductions, but early withdrawal can reverse the benefits

Regular FDs

• Normal FD schemes offer higher interest than savings accounts
• They offer short- to long-term, flexible tenures and allow loans against deposits

Reinvestment FDs

• The bank or NBFC reinvests the interest into the principal amount
• You earn interest on the principal and accumulated interest, paid at maturity

Auto FDs

• This type combines the benefits of savings accounts and FDs
• You set a threshold for your savings and excess funds automatically go into the FD for higher interest

Senior Citizen FDs

• These FDs serve older investors
• They offer a higher interest rate, prioritising capital safety over high returns

Digital FDs

• You can invest in such FDs entirely online
• The process requires no physical documentation and includes quick verification

Also Read: Term Deposit Vs Fixed Deposit

Benefits of Fixed Deposits

FDs help you grow your savings with minimal risk. Now that you know what is a fixed deposit and how it works, know some key benefits you can enjoy with it:

• Flexible Tenure: You can choose the tenure based on your preference 
• Loans Against FD: You can borrow up to 95% of your FD value during emergencies
• Assured Rate of Return: FDs offer a guaranteed rate of return throughout the tenure, so you can plan your returns and finances more efficiently 
• Easy Liquidation: It can be easily liquidated online or at the financial company’s branch
• Tax Threshold for Interest: No tax is deducted on interest until it crosses the income tax cap of ₹40,000 for regular investors and ₹50,000 for seniors

In conclusion, knowing what is a fixed deposit can boost your earnings. However, you do not have to break your FD if you need immediate funds. Instead, you can opt for Fibe’s Instant Personal Loan, offering fast access to funds without collateral. 

Get up to ₹5 lakh at competitive interest rates through our digital platform. Download the Fibe Personal Loan App for iOS and Android or apply on our website to secure funds.

FAQs on Fixed Deposit

Can I open an FD in a minor’s name?

Yes, you can open a fixed deposit for a minor. However, you need to be a parent or guardian to operate the account on behalf of minors until they turn 18 years old.

Can I transfer my FD to another bank?

No, you cannot directly transfer an FD to another bank. However, you can close the FD with your current bank and open a new one with a different bank.

How do I track my FD account?

Most banks provide multiple avenues through which you can track your FD account. Some of these are:

• Online platform
• Mobile app
• Customer care service
• SMS banking
• Missed call service

Can I add a joint holder to my FD account?

Yes, you can add a joint holder to your FD account. Most banks allow joint FD accounts with two or more holders.

What is the fixed deposit definition?

It refers to a savings scheme where you invest a certain lump sum for a fixed interest for a fixed tenure. It offers interest on your invested amount across the duration you choose. It is considered a nearly risk-free investment.