What Are The Different Kinds Of Fixed Deposits Available In India?

A fixed deposit, also popularly known as a term deposit, allows you to earn risk-free interest by depositing an amount for a predefined tenor. There are multiple types of fixed or term deposits available at almost all major banks and NBFCs in India with tenors ranging from 7 days to 20 years. A fixed deposit is considered to be one of the best fits for investors who want to safely grow their money.

The moment you invest in an FD, it gets locked; the investor can withdraw the principal only upon maturity. However, most banks or financial institutions allow premature withdrawal for a penalty. For the purpose of investment, there are varied types of fixed deposit accounts in the market and users can pick one that best fits their investment.

Types of Fixed Deposits

Before you invest in a fixed deposit, you must know the different FDs offered in the market. 

1. Standard Term Deposits

Standard fixed deposits are investment schemes wherein you invest an amount for a fixed period and a predetermined interest rate. The period of investment or tenure can range from 7 days up to 10 years. The interest offered depends on the duration of investment as well as the financial institution offering this instrument.

2. Senior Citizen Fixed Deposits

For individuals over 60 years of age, banks and NBFCs offer a higher interest rate on FDs than other investors, usually providing about 25-50 basis points (0.25-0.50%) more. They also provide an additional tax benefit. Interest from senior citizen FDs does not carry a tax deducted at source if it does not exceed ₹50,000 a year. Other investment options do not provide this benefit for seniors.

For individuals who are not senior citizens, the TDS deduction limit is at ₹40,000 a year. Investing in FDs as a senior citizen will reduce your overall tax burden and hence, increase returns.

3. Tax-Saving Fixed Deposit

There are specific tax-saving FDs that are eligible for tax deductions. A tax-saving FD has a maturity period of 5 years and the principal amount, up to ₹1,50,000 per annum is tax-deductible under section 80C of the Indian Income Tax Act.

4. Recurring Deposit

A recurring deposit is a type of fixed deposit wherein you can invest a fixed sum monthly or quarterly for a specified time. The interest rate is predetermined. At the end of the maturity period, you will receive your principal along with interest calculated proportionately. For instance, you can deposit ₹1,000 every month for five years. Interest on the first deposit will be paid for five years while that on the last deposit will be paid for one month.

5. Flexi Fixed Deposit

A flexible fixed deposit is linked to your savings account. In this instrument, you can instruct your bank to automatically transfer any sum beyond a predetermined balance to a fixed deposit via an auto sweep-in feature. For instance, if you want to maintain a balance of ₹20,000 every month, any excess will be transferred to an FD. Conversely, if your balance falls below ₹20,000, the bank will liquidate a portion of your FD to maintain your balance. It gives you the benefit of liquidity and investment. The interest on the Flexi-deposits is higher than savings account interest rates but lower than standard fixed deposit rates.

6. Fixed Deposit for Non-Resident Indians

Non-resident Indian citizens can invest in non-resident external (NRE) or non-resident ordinary (NRO) fixed deposits. NRE FDs are suitable for citizens earning in a foreign currency. Although there are currency fluctuations, the most significant advantage of NRE FDs is that the whole amount, principal and interest, are tax-free. NRO FDs can be deposited in Indian or foreign currency and are taxable at 30% per annum.

7. Corporate Fixed Deposits

Some companies or corporate entities also offer fixed deposits. While they offer a higher rate of interest than banks and NBFCs, the risk associated with corporate FDs is higher. While bank and NBFC deposits enjoy backing and insurance coverage from the DICGC, corporate fixed deposits do not provide this insurance. If a company goes bankrupt, there is no guarantee that your money in corporate deposits can be recovered.

Conclusion

A fixed deposit comes under the income tax deductions applicable under Section 80C of the IT Act. You can also avoid the TDS on interest income by submitting Form 15G/15H. Under Section 80TTB, senior citizens can claim a tax deduction of up to ₹50,000 in a financial year.

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