Introduction: What is an FD?
A Fixed Deposit (FD) is a time-bound deposit with a bank or NBFC at a fixed interest rate for a fixed tenure. It offers capital protection and predictable returns, making it ideal for conservative investors.
Why FDs are Important?
- Safety: Capital protection and assured returns.
- Flexibility: Tenures from 7 days to 10 years.
- Liquidity Options: Premature withdrawal (with penalty) and loan against FD.
- Suitable for Short-Term Goals: Park surplus funds safely.
Types of Fixed Deposits
- Regular FD: Fixed interest, fixed tenure.
- Tax-Saver FD: 5-year lock-in; eligible for deduction under Section 80C (subject to rules).
- Senior Citizen FD: Higher interest rates for senior citizens.
- Reinvestment (Cumulative) FD: Interest compounded and paid at maturity.
- Non-Cumulative FD: Periodic interest payout (monthly/quarterly).
- Sweep-in FD: Linked to savings account for better idle cash management.
Tips to Choose an FD
- Compare interest rates and compounding frequency.
- Prefer reputed banks/NBFCs with strong credit profiles.
- Choose tenure based on your liquidity needs.
- Use cumulative option for growth; non-cumulative for regular income.
- Check premature withdrawal penalties and TDS rules.
Conclusion
FDs are reliable for preserving capital and earning steady returns. Combine FDs with SIPs and other assets to balance safety and growth in your overall portfolio.