What is a fixed deposit?
Fixed deposit is a type of investment instrument that is offered by banks as well as non-banking financial companies (NBFCs). In them, you deposit a minimum sum of money, for a fixed tenor, and this money then earns interest which is paid out to you.
Fixed deposits are a great way to grow your savings, or even to plan for a large future expense, as they offer a much higher rate of interest than savings accounts. Moreover, they are widely considered to be one of the safest investment options, as they are independent of market fluctuations, and returns on them are assured.
There are two types of fixed-deposit schemes – cumulative, and non-cumulative. In a cumulative fixed deposit, the interest you earn is compounded on a regular basis and paid out to you only when the deposit matures. In a non-cumulative fixed deposit, the interest is paid to you at regular intervals, be it monthly, quarterly, half-yearly, or annually, depending upon your choice.