Fixed deposits, or FDs, are investment instruments offered by banks and non-banking financial companies. Compared to any regular savings account, FDs are known to provide higher returns on the principal amount you invest.

The term ‘fixed’ in fixed deposits comes from its aspect of having a fixed tenure. There are two types of FDs: short-term and long-term. This, however, is dependent on an investor’s investment portfolio. FD interest rates can also vary from one bank or NBFC to another.

As an investor, you cannot withdraw your money from an FD before its maturity. If you want to do so, you will have to face certain financial liabilities like payment of penalties. Apart from banks and NBFCs, post offices also offer FDs to anyone without a bank account. If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.

• FDs are offered by banks, post offices, and non-banking financial companies.
• There are many types of FDs to choose from.
• Certain FDs, like non-cumulative FDs, can also provide regular income to investors.

There are many types of FDs that investors can choose from depending on their investment goals. These are listed below:
 

• Corporate fixed deposits
  Corporate FDs, or company FDs, as the name suggests, are held by companies other than banks.
  
  
• Standard fixed deposits
  Standard FDs are your usual simple FDs in which you can invest a fixed amount with a financial institution. After the expiration of the maturity period, you can withdraw your investment, which will be a sum of your principal amount and the interest earnings from the scheme.
  
  
• Senior Citizen fixed deposit
  As a part of the senior citizen FD, individuals over 60 can invest in fixed deposits. Such an FD, however, offers flexible tenure options with higher interest rates compared to the standard plans.
  
  
• Tax-saving fixed deposit
  As the name suggests, a tax-saving FD helps investors save taxes. However, the maximum deposit one can make in such FDs is Rs. 1.5 lakh per year, and the maturation period is 5 years.
  
  
• Cumulative fixed deposit
  In such an FD, the interest is calculated either quarterly, half-yearly, or annually. The total interest earnings can only be withdrawn at the time of maturation.
  
  
• Non-cumulative fixed deposit
  In a non-cumulative FD, interest earnings are paid out monthly, quarterly, or half-yearly. If you are looking for a regular source of income, this is a good option to invest in. This is also a great opinion for pensioners.
  
  
• Flexi fixed deposit
  In a Flexi FD plan, investors need to link their FD account to their savings account to facilitate the movement of their investment between the two accounts. This provides investors with the benefit of a high interest rate along with liquidity from the savings account.
  
  
• NRO fixed deposit
  In an NRO FD, non-resident Indians can invest their Indian earnings in their NRO FD account. The interest thus earned can be completely repatriated by the holders. However, only a certain limit of the principal amount will be able to be repatriated.
  
  
• NRE fixed deposit
  NRIs can invest their foreign income in an NRE FD, which repatriates both the interest and principal.

Investing in FDs comes with its fair share of advantages and limitations. These are listed below:

Advantages

• FDs offer guaranteed returns on the principal amount, regardless of the market movement.
• Flexibility in terms of tenure exists where investors can either invest in short-term FD or long-term FD accounts.
• Cumulative FDs provide significant appreciation on the principal amount at the time of maturity.
• FDs can make for a great additional income source depending on the frequency of interest payout in non-cumulative FDs
   

Limitations

• FDs have a fixed interest rate, making them an inappropriate choice to beat inflation.
• Lock-in periods are strict in FDs and investors cannot withdraw their money before maturity without paying penalties.

Fixed deposits make a great investment option, provided you know which one to invest in. There are many FDs to choose from, and you can select a scheme that aligns with your investment objectives. For example, Bajaj Finance Digital FDs offer some of the highest interest rates, with tenures between 12 and 60 months.