What is Fixed Deposit & how does it work?

Fixed deposits (FD) have long been favored among investors, known for their stability and predictable returns. With fixed interest rates over a set period, they provide a secure option, particularly appealing to conservative investors like senior citizens seeking stable income during retirement. Even those with a higher risk tolerance should consider allocating a portion of their surplus funds to fixed deposits to diversify their investment portfolio effectively. Knowing everything about what Fixed Deposit is crucial before you begin investing here.

What is Fixed Deposit (FD) in bank?

Fixed Deposit is an investment scheme offered by banks and financial institutions that allows depositors to park a lump sum amount with the bank at a pre-determined interest rate for a pre-determined tenure. The interest rate on FDs remains unchanged through the tenure in most cases. As your money lies with a bank or a financial institution, the FDs are a secured mode of investment. Your returns do not fluctuate due to market factors and there is no volatility associated with your investments.

How does Fixed Deposit work?

Having understood Fixed Deposit meaning, it is also important to understand how does Fixed Deposit work. Banks allow depositors to open FD with them for a pre-determined tenure and interest rate. The amount received by the banks is used by them to extend loans to the borrowers. As the borrowers pay higher interest as compared to what the bank pays to its depositors, the difference amount is the earnings retained by the bank. Once the FD tenure expires, the depositor can withdraw the amount or renew his/her deposit amount. FD in banking offer you varying tenures. The interest rate across different tenures differs accordingly. Further, the interest rates are different across different banks and financial institutions.

Benefits of Fixed Deposits

Secure: Fixed Deposits are highly secure in nature as they remain unaffected by market fluctuations.
Good returns: Fixed Deposits provide returns that are relatively higher than those offered by savings accounts, often keeping pace with inflation.
Special rates for senior citizens: Senior citizens are offered a special interest rate that is higher than the normal FDs.
Flexible tenures: You have complete flexibility in selecting the tenure. The tenure for Fixed Deposits can range between 7 days to 10 years.
Tax benefits: You can claim a deduction under Section 80C up to ₹1.50 lakhs for each financial year for investing in tax-saver Fixed Deposits. It comes with a lock-in period of 5 years.

Types of Fixed Deposits

Regular Fixed Deposits: These are regular FDs that come with an investment tenure of 7 days to 10 years. The interest rates are higher than your regular savings account.
Tax Saver Fixed Deposit: Ever wondered what is Fixed Deposit account with tax benefits? These are dedicated FDs that are eligible for deduction under Section 80C up to ₹1.50 lakhs for each financial year. They come with a lock-in period of 5 years.
Digital Fixed Deposit: These Fixed Deposits are entirely digital from account opening to withdrawal. You don’t have to visit the bank and submit any physical documents.
Senior Citizen Fixed Deposits: What is FD in bank with special interest for senior citizens? These are dedicated Fixed Deposits for senior citizens that offer a higher interest rate as compared to the normal FDs.
Fixed Deposit Plus: If you have a higher amount to invest, then you can earn higher returns with Fixed Deposit Plus. It offers the option between simple interest and compound interest. It has no maximum limit on investment amount.
Auto Fixed Deposit: These FDs are a blend of Fixed Deposits and Savings Accounts. You need to set a certain threshold in your savings account. When the balance exceeds the threshold, the excess amount automatically goes into FD, providing you with a higher interest rate.

How to open FD Account?

Here’s how you can apply for FD online:

Visit the bank’s website
Search and select the FD option
Fill in the necessary details
Submit the relevant documents
Complete the video verification and other verification process.

Alternatively, you can also visit your nearest bank branch with the necessary documents and open your FD instantly.

Who is eligible for FD?

Every person who is an Indian can apply for Fixed Deposit schemes with any bank or financial institution.
Some schemes like Senior Citizen Fixed Deposits are meant only for senior citizens.
Many banks have separate FD schemes for Non-Resident Indians.
Some schemes of FD in banking may require a certain minimum amount of investment to be made in FD.

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

In a nutshell

A bank fixed deposit stands out as a straightforward and reliable investment vehicle, offering a secure avenue to build wealth and enhance financial stability. With Axis Bank, you have access to a diverse range of fixed deposit options tailored to meet your specific needs and preferences. Whether you're aiming for long-term growth or seeking immediate returns, our array of fixed deposit offerings ensures there's an option perfectly suited to your unique 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.