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What is Fixed Deposit: Meaning, Features and Benefit

02-08-2022 |

A fixed deposit investment is one of India's oldest and most popular investment options. It is a type of financial product offered by banks and non-banking financial institutions to investors who want to make assured money in a reasonably low risk way. It is a financial instrument that works along the lines of a savings account but with one that helps accumulate interest on the money saved in it. This is why it is also known as a fixed deposit account.

 

Read on to learn more about the fixed deposit meaning and other crucial fixed deposit information. 


 

What is a Fixed Deposit, and How Does it Work?


As mentioned earlier, a fixed deposit is a financial instrument account offered by financial institutions to investors looking for guaranteed1 interest and returns on their invested money. The way FD benefits work is simple. You go to the bank and request to open a fixed deposit account. The bank will show you the fixed deposit interest rates applicable for the financial year beforehand.

 

After checking the fixed deposit interest rates, you have to choose the term you want for your fixed deposit account. You have to make a one-time lump sum deposit. The tenure of a fixed deposit account can range from as low as ten days and high as ten years. Once you finish finalising the tenure, the fixed deposit becomes activated and accumulates the applicable interest over the term. 

 

 

What are the Fixed Deposit Interest Rates?

 

Once the fixed deposit starts running, the interest rate remains the same throughout the term as they remain independent from any market fluctuations.

 

When the tenure of the fixed deposit ends, you can receive the accumulated payout as a one-time maturity payout or in periodic instalments. However, you cannot withdraw any money from a fixed deposit once it starts and before it reaches maturity. The invested money remains locked for the entire tenure.

 

If, in any case, you make a premature withdrawal, you might have to clear a penalty levied by the bank. Or you might get the accumulated amount at lower interest rates.

 

 

What are the Types of Fixed Deposits?

 

Once you know the fixed deposit meaning, you can move on to understand the various types of fixed deposits. They include:

 

  • Standard fixed deposits

    A standard fixed deposit is the most popular type of fixed deposit. It is when an investor chooses the timeframe for the fixed deposit investment with the predetermined interest rate. The investor can choose between the tenure of 7 days to even ten years.

 

  • Floating fixed deposits

    A floating fixed deposit is one in which the interest rate changes every quarter (three months) or year. So, the investor can benefit from an increased interest rate at best or get a lowered interest rate at worst.

 

  • Tax*-saving fixed deposits

    A tax*-saving fixed deposit is also like a standard fixed deposit, except that if you want to save tax* from the FD benefits earned, it has to last up to 5 years.

 

What are the Fixed Deposit Benefits?

 

Here are the fixed deposit benefits:

 

  • Guaranteed1 returns

    What makes fixed deposits a popular investment choice among investors is that they provide assured returns without much risk involved. You get what you desire, and there is no impact of the volatility in capital market on your investment. So, you stay safe from fluctuations in the equity or debt market. However, because the returns are guaranteed1, and the risk is very less.

 

  • Complete transparency

    Apart from floating fixed deposits, the fixed deposit rates are consistent. You get what you see, and there are no hidden charges. Moreover, you get the flexibility of choosing the tenure of the fixed deposit and how you want to receive the money once it ends. Opening a fixed deposit account is also very easy and convenient – the entire process takes a few minutes. 

 

  • Loan benefits

    This is one of the most beneficial fixed deposit features. You can take a secured loan against a fixed deposit in exchange for pledging the amount the deposit will yield at the end of its term.

 

  • Tax FD benefits

    Fixed deposits are taxable. The amount earned in maturity at the end of the fixed deposit is subject to tax* deduction at source (TDS) only if the interest earned is more than ₹10,000 in a year.

 

 
To Conclude

 

Fixed deposits are the ideal investment for risk-averse and traditional investors who want the security of guaranteed1 returns. The returns earned on fixed deposits are definitely more than a simple savings account where money remains idle and loses value over time. You can use an FD calculator to calculate this sum.

 

A fixed deposit can help you fulfil goals like marriage, higher education, travel, and others while ensuring your money does not stagnate due to inflation. However, if you want interest rates and additional benefits like life insurance, savings, and market-linked wealth creation, many other investment options apart from fixed deposits are available. To get insight on what investment avenue aligns with your financial goals, you can explore the Tata AIA life insurance company. You can also choose a life insurance savings plan that will offer life insurance coverage and savings components under a single policy.

 

L&C/Advt/2022/Jul/1759

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Need more information?

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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

Looking to get a new plan? 

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+91

TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

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Easy Investment And Savings Tips You Should Follow In Your Youth!
Read More
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Read More
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Read More
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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA), Tata AIA Life Insurance is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimers

  • Insurance cover is available under the product.
  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services, and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry.

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