7 Different types of fixed deposit in banking

Fixed Deposits are financial instruments that provide different options to park your funds securely and earn regular income. Fixed Deposits allow you to earn a fixed pre-determined interest over the term of the deposit. They have always remained a go-to option for risk-averse investors and have been instrumental in reducing the overall portfolio risk. Choosing the right type of FD is important to achieve your investment goal. Thus, it’s imperative to know the different types of Fixed Deposits you can invest in.

Different types of Fixed Deposits

Regular Fixed Deposits: Regular Fixed Deposits are the normal Fixed Deposit schemes offered by financial institutions. These Fixed Deposits provide a good cover against inflation. The interest may be paid out monthly, quarterly, half-yearly or annually depending on the terms of the scheme. In this type of FD, the investor parks the fund for a fixed period ranging from 7 days to 10 years. The interest rate offered is higher than saving bank deposits. Depositors can avail of loans and overdraft facilities against these deposits. These can be withdrawn earlier than maturity with a penalty of lower interest.

Tax-Saver Fixed Deposits: If you wish to save taxes, then Tax Saver Fixed Deposits are the right avenue to invest in. Since they come with a lock-in period of 5 years, pre-mature withdrawal can lead to the reversal of tax benefits. The rate of return in the case of Tax-Saver Fixed Deposits is similar to normal FDs. Investment in this type of FD qualifies for a deduction of up to Rs. 1.5 lakh from the taxable income, under Section 80C. The interest on this FD is taxable. There is a mandatory lock-in period of five years and thus, the tax-saver FD cannot be withdrawn prematurely. Loans and Overdraft facilities are not available in this type of FD.

Digital Fixed Deposits: Investing in Fixed Deposits has become more convenient than ever as you don’t need to visit banks anymore. The entire process from KYC to deposit and withdrawal is available online. You can open this FD online instantly without any physical documentation. If you are a non-Axis Bank customer, you can open a Digital FD with PAN and Aadhaar verification and video KYC. You can fund with a savings account from any bank.

Reinvestment Fixed Deposits: In this type of FD account, the interest is not paid out like regular Fixed Deposits but reinvested back into the FD funds. The entire amount of principal invested plus interest is paid after maturity. This allows you to earn interest on both the principal and the interest reinvested.

Senior Citizen Fixed Deposits: For senior citizens, the safety of capital is paramount over the interest earned. Senior Citizen Fixed Deposits are a dedicated investment option for senior citizens. These deposits are only for investors who are older than 60 years. The interest rate on these FDs are 0.75% higher than standard FDs. The tenure can range from 7 days to 10 years.

Fixed Deposit Plus: The higher the investment, the higher the rewards. If you wish to invest a higher amount in Fixed Deposits, then investing in Fixed Deposit Plus will offer more features than a regular FD. These are deposits that give a higher rate of interest in comparison to regular FDs. The minimum amount of investment in these deposits is higher. Additionally, investors have the option to choose between simple interest and compound interest. Please note these deposits cannot be pre-closed.

Auto Fixed Deposits: This type of Fixed Deposit comes with a lock-in period and penalty on pre-mature withdrawal. Thus, it can create liquidity issues for some depositors. Auto Fixed Deposits ward off this limitation by blending the benefits of Savings Accounts and Fixed Deposits. These FDs give the investors the convenience of savings accounts and interest rate on deposits. . In this type of FD, you can set a certain threshold amount to be kept in your savings account. The rest of the amount automatically goes into the FD, thereby earning a higher interest rate. The Auto Fixed Deposit shall be broken whenever there is a fund requirement in your savings account.

Types of FDs for NRIs

FCNR Deposit: It can be opened in only freely convertible foreign currency. You get 6 currency options: USD, GBP, AUD, JPY, EUR and CAD.
NRE Rupee Deposit: You can invest in this FD with any convertible currency received from abroad.
NRO Rupee Deposit: These FDs come with a tenure ranging between 7 days and 10 years. The NRO Rupee Deposit offers competitive interest rates.
NRI-Pro Rupee Deposit: It comes with attractive interest rates and the interest earned is tax-exempt in India.
Recurring Deposit: If you wish to invest regularly instead of a lumpsum investment, then you can opt for NRE Recurring Deposit or NRO Recurring Deposit.

Benefits of FDs

They offer tax deductions up to ₹1.5 lakh for each financial year under Section 80C.
You can avail of loans and overdraft facilities against your FD.
They are instrumental in the overall reduction of your portfolio risk since they provide guaranteed returns.
Senior citizens are eligible for a higher interest rate than regular Fixed Deposit schemes.

How to choose the right FD?

While there are different types of FDs available, you should select the suitable one based on the following factors.

1. Interest rates: Check the interest rate that the deposit is offering. Different banks offer different interest rates. Typically, longer tenure FDs and higher investment amounts fetch higher interest rates.

2. Premature withdrawal facility: Banks typically charge 1% lower interest on premature withdrawal. Choose a bank with a lower penalty or with premature penalty features.

3. Suitability: Select the tenure of the FD to match your financial goals to avoid premature withdrawal.

4. Provider soundness: FD is a relatively risk-free investment. You should check the credit ratings and financial position of the bank or NBFC before committing the amount to a deposit.

5. Convenience: Check if it is possible to open the FD online as it will save you time and hassle.

Reasons to Invest in Fixed Deposits

This is a safe investment for risk-averse investors.

Having visibility on the fixed interest rate and maturity amount helps in better financial planning.

A loan and overdraft facility is available on investments.

Senior citizens can earn a higher rate of interest.

A tax exemption of up to Rs. 1.5 lakh is available on the tax-saver FD.

Also Read: Top 5 reasons to open a Digital Fixed Deposit

Finally, we can say that there are many investment options available for investors today. Few can beat the safe, risk-free return that is offered by Fixed Deposits. Based on the factors above, choose the right FD in the right bank and let your money work for you. You can check Axis Bank Fixed deposits and select the one meeting your requirements.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.