Investing your hard-earned money in the right way is extremely important. But thankfully today, we are presented with an array of saving options. From mutual funds to real estate and stock markets, the options are truly immense. 

And, the fixed deposit account is one of the popular ways of saving your money. In this article, we share everything that you need to know about this account. 

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What is a Fixed Deposit?

A fixed deposit account is a popular investment instrument provided by banks as well as non-banking financial institutions. In this, you can deposit money and, in turn, get a higher rate of interest than when you open savings account. 

You deposit a lump sum money in a fixed deposit account for a particular period. The deposit time and rate of interest vary between different financiers. 

Once you have deposited the money, it begins generating interest based on the FD duration. Generally, you cannot withdraw money from your FD account prior to the maturity period. And if you need to withdraw the money, you will have to pay the penalty. 

What are the Features of Fixed Deposit Accounts?

Following are the features of fixed deposit accounts – 

  • These types of accounts allow investors to gain higher interest on the surplus funds. 
  • While there is comparatively less liquidity, you can choose a higher rate of interest. 
  • You have to deposit all the money at once into the fixed deposit account. If you want to add more money, then you have to create a new account. 
  • It is easy to renew a fixed deposit account. 
  • Interest on fixed deposit is dedicated from tax under the Income Tax Act, 1961. 

Types of Fixed Deposit Account 

Below are the types of fixed deposit account you can choose from – 

Standard Fixed Deposits 

These accounts are the most important forms of investment. The investors deposit a particular amount of money for a certain period of time and accrue pre-determined interests on the money. Features of standard fixed deposits are – 

  • The standard rate of interests 
  • Fixed tenure 
  • Investment is not subjected to market volatilities 

Cumulative Fixed Deposits 

In cumulative fixed deposits, the interest is only paid to you with the principal amount after the completion of the investment period. This is accumulated on a monthly, yearly, half-yearly, quarterly, half-yearly, weekly, and bi-weekly basis. 

Tax Saver Fixed Deposits 

Tax saver fixed deposits generally come with longer tenure, varying between three and five years. Therefore, these schemes feature a lock-in period. 

Moreover, investors cannot withdraw their money before the end of the investment period. Additionally, You get to claim tax exemption of up Rs. 1.5 lakhs under Section 80 C of the income tax act. 

Flexi Fixed Deposits

These types of accounts allow you to combine your savings account with the fixed deposit account. You get to leverage the liquidity of saving accounts and higher returns of fixed accounts. 

If you are looking into saving options, then the fixed deposit is an effective solution. Make sure you read all the terms and conditions of opening the account before making the final decision. 

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].