Fixed Deposits: Meaning, Benefits & Interest Rates

A fixed deposit (FD) is among the best investment options for Indians looking to earn guaranteed returns on their savings. An FD allows you to deposit a sum with a bank or financial institution for a specified tenure ranging from 7 days to 10 years. The financial institution offers you the highest FD interest rates on your deposits. Let’s take a detailed look at fixed deposits, their benefits, interest rates, and the process of opening one.

What is a Fixed Deposit?

A fixed deposit provided by banks and NBFCs allows you to invest your money for a fixed tenure. Your funds keep earning interest at a specified interest rate for the tenure. Upon maturity, you will receive the amount. Since FD offers stable returns and is a safe investment option, investors often consider FD as a safe investment. The key features of an FD are:

  • You invest a fixed amount with the NBFC or a banking institution for a specific period called tenure. This can range from 7 days to 10 years.
  • The financial institution pays you guaranteed interest at a pre-decided fixed interest rate. This rate relies on the FD tenure you choose.
  • There is a minimum and often a maximum cap on the FD investment amount set by the bank or NBFC.
  • Your money remains locked in the FD tenure. While some FDs allow you to take a loan against them, premature withdrawal imposes a penalty.

Benefits of Investing in a Fixed Deposits

Fixed deposits have many benefits, making them one of India’s top investment options. Here are some key advantages: 

1. Guaranteed Returns

FD provides fixed returns as the interest rate is decided upfront when investing. So, unlike other options such as stocks or mutual funds, the returns are secure.

2. Safety 

Fixed deposit accounts are very safe as they are insured up to Rs 5 lakh per investor by the Deposit Insurance and Credit Guarantee Corporation. So, even if the bank defaults, you will receive up to Rs 5 lakh of your deposit amount.

3. Choice of Tenure 

You can put your money in an FD ranging from 7 days to 10 years per your liquidity needs.

4. Flexibility 

Many banks allow you to choose between paying out the maturity amount or investing it again for another tenure. Senior citizens can avail of the higher interest rates.

5. Liquidity Options

Fixed Deposits are meant to be held till maturity for the highest returns, but most banks offer penalties for premature withdrawals, which may be nominal. This allows us to have the desired level of liquidity for cases of sudden financial needs.

6. Tax Benefits

Some FDs, like Tax Saving Fixed Deposits, get special tax treatment under Section 80C of the Income Tax Act. Investors can claim refunds on invested amounts within the limit of the tax laws, providing an additional attractor for tax-conscious people.

Why are Fixed Deposits So Popular in India?

Here are some key reasons why fixed deposits have gained immense popularity among Indian investors:

1. Guaranteed Returns 

FDs provide fixed returns unaffected by market volatility. You’re assured of earning the interest rate offered when investing.

2. Low Risk 

FDs involve very negligible risk. They are safer than stocks, mutual funds and other options where the returns fluctuate. They are suitable for risk-averse investors seeking safe investing options.

3. Little Knowledge Required 

Opening and investing in FDs is very simple. Unlike markets, they don’t require any specific financial knowledge or constant monitoring.

4. High Trust 

Banks and large financial institutions offer FDs, which the Indians already trust for their savings deposits. This makes them more approachable to the common man.

5. Flexible Options 

FDs are available in different tenures from the banks, NBFCs, and post offices to suit all the investors’ liquidity and return needs.

6. Loan Facility

Many FDs allow you to take loans against them in case of need while still earning interest on the amount invested.

7. Diversification Strategy

Investors, therefore, usually employ fixed deposits for their overall portfolio diversification plan. However, investors should know that investing in riskier assets will bring higher returns but also instability, while FDs bring stability and balance to the investment mix.

Interest Rates Offered on the Fixed Deposits

Banks and NBFCs usually tweak their FD interest rates from time to time. Current rates offered by some major banks and institutions are as follows:

Private Sector Banks Interest Rates (% p.a.)
Highest slab 1-year tenure 3-year tenure 5-year tenure
Axis Bank 7.20 6.70 7.10 7.00
Bandhan Bank 7.85 7.25 7.25 5.85
City Union Bank 7.00 6.75 6.50 6.25
Dhanlaxmi Bank 7.25 6.75 6.50 6.60
HDFC Bank 7.25 6.60 7.00 7.00
Federal Bank 7.50 6.80 7.00 6.60
IDBI Bank 7.25 6.80 6.50 6.50
ICICI Bank 7.10 6.70 7.00 7.00
IndusInd Bank 7.75 7.75 7.25 7.25
IDFC First Bank 7.75 6.50 7.25 7.00
RBL Bank 8.10 7.50 7.50 7.10

 

Public Sector Banks Interest Rates (% p.a.)
Highest slab 1-year tenure  3-year tenure 5-year tenure 
Bank of Baroda 7.25 6.85 7.25 6.50
Bank of India 7.25 6.50 6.50 6.00
Bank of Maharashtra 7.00 6.50 6.25 6.00
Canara Bank 7.25 6.85 6.80 6.70
Indian Overseas Bank 7.10 6.90 6.50 6.50
Punjab National Bank 7.05 6.75 7.00 6.50
State Bank of India 7.10 6.80 6.75 6.50

How to Open a Fixed Deposits Account?

Opening a fixed deposit account is very easy and can be done online or offline: 

  • Visit the closest branch of your preferred bank.
  • Fill out the FD application form with information like amount, tenure, payout choice, etc.
  • Submit your KYC documents and initial payment cheque.
  • The FD account will be opened instantly, and you will get the FD receipt.
  • Alternatively, many banks allow you to open FDs online by visiting their website/app. You can complete the eKYC process digitally and pay via net banking or UPI.

Fixed Deposits Rates for Senior Citizens

Traditionally, banks and NBFCs have provided 0.5% p.a. interest on top of the FD interest rates given to other depositors. This special rate is usually for senior citizens. Some banks offer to give an extra 0.20% to 0.50% over the already fixed interest rate. Hence, investors can check out with their banks to know the latest FD rates. 

Conclusion

Fixed deposits are a very preferred investment for Indians as they offer the safety of principal, guaranteed fixed returns unaffected by the volatility in the markets, a range of tenure options, and liquidity via loans against FD. Interest rates range from 5.50% – 7.0% currently based on the chosen tenure. Opening an FD account is simple at your nearest bank branch or via net banking/app. Start investing in this safe investment option with Wint Wealth today!