For generations, Fixed Deposits have been one of India’s most trusted investment options. If you are new to investing and looking for a safe way to grow your savings, understanding the basics of FDs is essential. Let us learn about FDs, their working, and everything you need to know before opening your first FD.

What is a Fixed Deposit?

A Fixed Deposit is a financial instrument offered by banks where you deposit a lump sum for a fixed tenure at a predetermined interest rate. Unlike a Savings Account, FDs offer higher interest rates, but your money remains locked until maturity unless you opt for premature withdrawal.

Key features of a Fixed Deposit

  • Fixed interest rate: The rate is locked-in at the time of opening and does not change during the tenure.
  • Flexible tenure: The tenure can range from 7 days to 10 years.
  • Guaranteed returns: Your maturity amount is known in advance.
  • Low risk: Not affected by market fluctuations.
  • DICGC insurance: Deposits up to Rs. 5 lakh per depositor per bank are insured.

Types of Fixed Deposits

  1. Cumulative FDs: Interest is compounded and paid at maturity.
  2. Non-Cumulative FDs: Interest is paid monthly, quarterly, half-yearly, or annually.
  3. Tax-Saving FDs: The FD is locked for 5 years, and it is eligible for deductions under Section 80C.
  4. Senior Citizen FDs: Offers higher interest rates for individuals above 60 years.
  5. Flexi FDs: Links FD with a Savings Account for liquidity and better interest.

How do Fixed Deposits work?

  1. Choose the bank: Compare interest rates and features.
  2. Select deposit amount & tenure: Decide the amount you want to invest based on your financial goals.
  3. Lock in the interest rate: The rate at booking stays fixed.
  4. Deposit funds: Pay via cheque, transfer, or cash as per bank rules.
  5. Earn interest: Interest is calculated daily/quarterly, depending on the plan.
  6. Maturity: Receive principal and the interest amount or reinvest for a new term.

Benefits of investing in Fixed Deposits

  • Your money is protected from market volatility.
  • There is no surprise factor; returns are predictable since they are fixed. Many investors use an FD interest calculator to calculate the exact amount.
  • Due to flexible tenures, FDs suit both short- and long-term goals.
  • You can open an FD Account online in minutes.
  • You can also apply for a Loan against an FD during a financial crisis, without breaking it.

Things investors should keep in mind

  • Check interest rates in advance since rates vary across banks.
  • FD interest is taxable; submit Form 15G/15H if eligible to avoid TDS.
  • Avoid premature withdrawal since it attracts penalties and reduces returns.
  • Don’t put all savings in one FD; split into multiple deposits for flexibility.

Conclusion

For first-time investors, FDs offer a stable and straightforward way to grow savings without taking on significant risk. While they may not match the high returns of market-linked products, their safety, fixed interest, and easy accessibility make them an essential part of a balanced financial portfolio.