A time deposit offers higher interest rates than regular savings accounts, requiring funds to be locked for a specific period.
A time deposit offers higher interest rates than regular savings accounts, requiring funds to be locked for a specific period.
When it comes to saving and investing, you can choose from different types of accounts to grow your wealth. A time deposit is a popular option among most conservative investors. A time deposit account is an interest-bearing account where you deposit a lump sum amount for a specific period. Also known as term deposits, time deposit accounts offer relatively higher interest rates than regular savings accounts. Moreover, these accounts tend to be less flexible since you cannot withdraw your funds before the pre-set maturity date.
Banks offer term deposit accounts to fund their lending operations. The funds deposited into the time deposit account remain locked in for a specific duration. In other words, the account holder cannot make a withdrawal request until the account reaches its set maturity date. During this tenure, the bank can lend these funds to other customers. These funds are lent at a higher interest rate than the interest rate on the time deposit account. The bank profits from the difference between the bank’s loan rate and time deposit interest rate. Alternatively, banks can also invest the funds into other securities that pay a higher rate of return than the quoted time deposit interest payable to the account holder.
Fixed Deposit (FD) can be a good choice for investment. FDs provide a fixed interest rate throughout the investment period. Interest rate on FDs does not change with market fluctuations.
Also Read: Time deposit vs. Fixed deposit
When you open a time deposit account at a bank or NBFC, you deposit a lump-sum amount for a predetermined period. Some financial institutions may have a minimum deposit requirement for their time deposit accounts. The deposited funds remain stored in the account for a specific period during which you cannot withdraw. This term can range from one month to five years. The interest rate on your time deposit account is locked in on the day you open the account and remains fixed through its tenure. Time deposit interest rates tend to be higher than regular savings accounts, with longer terms offering higher interest rates. Most financial institutions have time deposit calculators you can use to compute your interest earnings and total corpus over varying tenures. Time deposits offer guaranteed returns and complete capital safety, making them apt options for risk-averse investors.
You can choose from varying time deposit tenures depending on your investment objective and liquidity requirements. Generally, time deposits come with a minimum tenure of 30 days. However, you can opt for longer tenures for better interest earnings. Once your time deposit matures, you can choose to withdraw the corpus and close the account. Alternatively, you can also choose to renew the account for another term.
Generally, the longer the investment tenure of your time deposit, the higher the interest rate paid on the investment. For instance, a 1-year FD may offer an interest rate of 6% p.a., while a 3-year FD can offers an interest rate of 7.20%. Additionally, there are generally two rates quoted for time deposits. First is the simple interest rate, which is a percentage interest you earn if you withdraw the interest earnings every month. Second is the effective interest rate or APY (annual percentage yield), which is the amount you receive if the interest is allowed to remain in the account and compound over time. Given the power of compounding, APY is generally higher. In other words, the interest calculations for cumulative and non-cumulative FDs also vary. However, longer tenures may not always mean higher interest earnings. You should carefully check the interest rates offered for varying tenures by the bank or financial institution you choose.
You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 7.75% p.a.
Time deposits, just like other financial products, come with their own sets of advantages and disadvantages. While time deposits allow you to earn higher-than-average interest and ensure capital safety, they also have certain downsides. Let us take a look at the drawbacks of a term deposit account:
Advantages | Disadvantages |
Time deposits offer a fixed interest to depositors. | Fixed interest can often lead to the loss of purchasing power due to rising inflation levels. |
Time deposits are risk-free investment options with guaranteed returns. | Depositors lose out on better opportunities if interest rates rise. |
Depositors can choose from different maturity tenures to suit their financial plans. | Money from time deposit accounts cannot be prematurely withdrawn without penalty charges. |
Time deposits offer a higher rate of interest than regular savings accounts. | Interest on time deposit accounts is lower than other investment instruments. |
If you want to open a time deposit account, you can do so by visiting your preferred bank branch or NBFC office. Next, you must fill out the application form for the time deposit account and submit copies of essential documents like your PAN Card and Aadhaar Card. Most banks and NBFCs allow customers to open time deposit accounts online. To do so, you have to visit their website and select the time deposit option. Fill in the online time deposit account opening form with the fund amount and investment tenure details. Once your e-KYC process is completed and your form is verified against your documents like PAN and Aadhaar Card, you can deposit the lump-sum fund via a preferred transfer mode like net banking, UPI, RTGS, or NEFT.
If you are a low-risk investor seeking higher returns than regular savings accounts, you should consider time deposit accounts. These accounts help grow your savings without market exposure. You invest a lump-sum amount into term deposit accounts, earning a fixed interest on the same. These accounts combine capital safety and guaranteed returns with relatively high returns compared to other conventional saving avenues.
Time deposits are bank accounts in which you deposit a lump sum amount for a fixed tenure and earn interest at a pre-given rate. The deposited funds cannot be withdrawn before the maturity date.
Time deposits are intended for investors who want to ensure capital preservation but also earn higher-than-usual interest. These accounts are best suited for investors who want to invest their funds in a safe account where the interest rate may not be as high as that of market-linked investments but remains fixed and guaranteed throughout the investment tenure.
FDs are a kind of time deposit account where you make a one-time lump-sum deposit for a fixed tenure, earning interest at a predetermined rate.
Fixed Deposits versus other investment options
Step-by-step guide to opening a Fixed Deposit
How to choose the right tenure
How inflation impacts FD returns
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As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.
For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.
