What is Fixed Deposit (FD)

Know all about fixed deposit and its features and benefits.
OPEN FD
What is Fixed Deposit?
OPEN FD
4 mins
18 March 2024

A fixed deposit (FD) is an instrument through which you can grow a lumpsum over a fixed tenure at a fixed interest rate. It is a safe investment option that guarantees consistent interest rates. It offers special interest rates for senior citizens, multiple interest payment options, and no market-related risks.

The interest rate remains unaffected by market fluctuations, and you get good returns on maturity, that is, after the lock-in period. You can choose to get your interest on a periodic basis, or at maturity. Usually, the defining criterion for an FD is that the money cannot be withdrawn before maturity, but you may withdraw it after paying a penalty.

What is a fixed deposit?

Fixed deposit is a type of investment scheme where an investor deposits a sum of money for a fixed period and earns interest on it. The interest rates on FDs are fixed and guaranteed, making them a low-risk investment option.

The interest rates offered on FD vary depending on the financial institution, type of FD, tenure of the deposit, and the customer type.

How does an FD work?

Fixed Deposits (FDs) offer a safe way to grow your money. You invest a lump sum for a chosen term (7 days to 10 years) and earn guaranteed interest. The longer you invest, the higher the interest rate. Interest is generally credited to your savings account or into your FD account.

Types of fixed deposits

Different categories of fixed deposits include:

  1. Standard term deposits
    This is the most common type of FD available at all banks. You deposit a fixed amount of money for a specific tenure, and the bank pays you interest on it at regular intervals or at maturity. The interest rate is pre-determined by the bank and varies based on the tenure and amount invested.
  2. Senior citizen fixed deposits:
    These are FDs designed specifically for senior citizens. They offer higher interest rates than standard FDs and are available to individuals aged 60 years and above.
  3. Flexi fixed deposit
    This is a type of FD that allows you to withdraw money from your account without breaking the FD. You can withdraw up to a certain limit without incurring any penalty, and the interest rate is calculated on the remaining balance.
  4. Recurring deposit
    This is a type of FD where you deposit a fixed amount of money at regular intervals (usually monthly) for a specific tenure. The interest rate is pre-determined by the bank and varies based on the tenure and amount invested.
  5. Tax-saving FD
    A Tax-Saving Fixed Deposit (FD) is a type of fixed deposit account that offers a tax deduction under Section 80C of the Income Tax Act, 1961 1. Any investor can claim a deduction of a maximum of Rs. 1.5 lakh per annum by investing in a tax-saving fixed deposit account. The lock-in period for this type of FD is 5 years, and the interest earned is taxable.

Related To read - Tax Saving Fixed Deposit

Pro tip

Enjoy higher interest rate with Bajaj Finance Digital FD. Unlock returns of up to 8.85% p.a. by investing for 42 months via our website and app.

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Other Types of Fixed Deposit

  1. Cumulative FD
    In cumulative FD, the earned interest is reinvested in the FD account. Both the principal amount and the accumulated interest are paid out at the end of the tenure. This suits investors seeking higher returns without the need for regular interest payouts.
  2. Non-cumulative FD
    Under this FD type, the earned interest is paid to the investor periodically such as monthly, quarterly, half-yearly, or annually, based on their preference. It is suitable choice for investors looking for a steady income stream.

How is interest on FD calculated?

Calculating interest on fixed deposits is simple, considering the investment amount, interest rate, and investment duration. The basic formula is:

Interest on FD=Amount Invested × Interest Rate × (Duration/12 months)

However, the interest amount varies based on whether you opt for a cumulative or non-cumulative FD. For example, let's consider investing Rs. 50,000 for 5 years at an annual interest rate of 8.5% p.a. In this scenario, a cumulative FD would yield a maturity value of Rs. 76,140.

 Amount

Interest rate (p.a.)

Interest earned per annum

Rs. 1,00,000

6%

Rs. 6,000.00

Rs. 1,00,000

6.50%

Rs. 6,500.00

Rs. 1,00,000

7%

Rs. 7,000.00

Rs. 1,00,000

7.50%

Rs. 7,500.00

Rs. 1,00,000

8%

Rs. 8,000.00

Rs. 1,00,000

8.50%

Rs. 8,500.00

Rs. 1,00,000

9%

Rs. 9,000.00

Rs. 1,00,000

9.50%

Rs. 9,500.00

Rs. 1,00,000

10.00%

Rs. 10,000.00


Who should invest in an FD?

Fixed deposit is a popular investment option for various reasons. It offers fixed returns, minimal risk, flexible tenure, tax benefits, and easy liquidity. FDs are suitable for a wide range of investors depending on their financial objectives and investment portfolio. Here are the types of investors who should invest in fixed deposits:

  1. New investors: FDs are an idea investment option for new investors interested in learning about fixed income instruments. These investors can start with small investments and gradually increase their holdings.
  2. Retirement planning: People looking for a low-risk option to create a retirement corpus can invest in fixed deposits. This investment provides retirees with a regular and guaranteed income stream and protects their savings from market fluctuations.
  3. Conservative investors: FDs are an ideal choice for investors who prefer safe and low-risk investments. Conservative investors want to avoid fluctuations in returns that come with riskier investment products.
  4. Short-term goals: Investors with short-term goals can invest in fixed deposits to achieve their financial objectives. FDs offer flexible tenures from a few days to a few years. Investors can use the interest earned on the investment to meet their short-term financial goals.
  5. Emergency funds: FDs are a useful investment option to set aside emergency funds. They provide higher interest rates than savings accounts and offer easy liquidity with premature withdrawal.

Features and benefits of fixed deposit

Here are some key features and benefits:

  • The returns are profitable and not affected by market fluctuations.
  • There is little to no risk of loss of principal.
  • FD interest rates offered by NBFCs are higher than those of banks.
  • FDs can be easily renewed.
  • FDs offer loan against FD up to 75% of the deposit amount.
  • Tax is deducted at source on the interest income as per the Income Tax Act, 1961. If your total income is not taxable, you can avoid TDS by submitting (Form 15G Form, 15H if you are a senior citizen).
  • You can opt for periodic interest payouts to manage your monthly expenses.
  • Senior citizens often get higher FD interest rates.

Features of Bajaj Finance Fixed Deposit

Here are some key features of Bajaj Finance Fixed Deposit:

1. High FD rates

Bajaj Finance offers one of the highest FD rates in the market, ranging from 7.53% p.a. to 8.60% p.a. for regular customers and up to 8.85% p.a. for senior citizens, depending on the tenure of the deposit. This means that you can earn higher returns on your investment without taking on any additional risks.
Mentioned is an example where a customer below 60 years and a senior citizen invests Rs. 5,00,000 for different tenure. Here is how much they will receive at the end of their chosen tenure. (03 Apr, 2024)

Customers below 60 years

Senior citizens

Interest rate 

Maturity value

Interest rate

Maturity value

7.40% p.a.

Rs 5,37,0002

8.04% p.a.

Rs. 5,38,250

7.80% p.a.

Rs. 5,78,350

8.20% p.a.

Rs. 5,81,042

7.75% p.a.

Rs. 6,13,928

8.00% p.a.

Rs. 6,17,853

8.25% p.a.

Rs. 6,70,928

8.60% p.a.

Rs. 6,76,622


Disclaimer: The above calculations are done using the FD Calculator.

2. Flexible tenures

Bajaj Finance Fixed Deposits offer flexible tenures ranging from 12 to 60 months. This means that you can choose a tenure that suits your investment needs and goals. Whether you want to invest for a short-term or a long-term period, Bajaj Finance has got you covered. You can also opt for a cumulative FD, where the interest is compounded annually and paid out at maturity. In a non-cumulative FD, the interest is paid out monthly, quarterly, half-yearly or annually.

3. Easy online application

Bajaj Finance offers an easy online application process for opening a fixed deposit account. You can visit the Bajaj Finance website, fill out the application form, and upload the necessary documents. Once your application is approved, you can transfer the funds online, and your fixed deposit account will be opened instantly. This saves you time and hassle of visiting a bank or a financial institution to open an FD account.

4. Monthly deposits

The Bajaj Finance Fixed Deposit also comes with a Systematic Deposit Plan (SDP) feature. Instead of making a lump sum investment, it allows you to make periodic investments in FDs. Each FD you start will earn returns based on the current FD rates. This allows you to ensure that you begin the journey of growing your wealth without straining your finances. With the Bajaj Finance SDP, you can begin to invest with as little as Rs. 5,000 every month.

5. Highly rated by credit rating agencies

Bajaj Finance Limited is rated CRISIL AAA/ STABLE and [ICRA]AAA(Stable). This indicates the highest degree of safety and stability regarding the timely payment of interest and principal on fixed deposits. This means that your investment is in safe hands, and you can be assured of timely payments of interest and principal.
 

Why invest in a Bajaj Finance Fixed Deposit?

Bajaj Finance offers some of the highest FD rates in India, up to 8.85% p.a., and you enjoy high investment safety here because of the highest credit ratings - CRISIL AAA/STABLE and [ICRA]AAA(Stable). You can invest for a flexible tenure and start with a sum of just Rs. 15,000. By investing in a Bajaj Finance FD, senior citizens can also reap interest rate benefits up to 0.25% p.a. on their deposits.

Interest rate

up to 8.85% p.a.

Minimum tenure

1 Year

Maximum tenure

5 Years

Deposit amount

Min- Rs. 15,000

Application process

Easy online paperless process

Online payment options

Net Banking and UPI


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Frequently asked questions

What is the Digital FD offered by Bajaj Finance?

Bajaj Finance has launched a new FD type called "Bajaj Finance Digital FD" for a period of 42 months. Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a. for senior citizens and for the customers below the age of 60 they are providing up to 8.60% p.a. The Digital FD can be booked and managed only through the Bajaj Finserv website or app.

How often will I receive interest?

Interest payouts vary based on FD type; non-cumulative FDs offer regular payouts (monthly, quarterly, half yearly or annually), while cumulative FDs pay at maturity.

What happens if I want to liquidate my FD before maturity?

Premature withdrawal is possible but may incur penalties.

Can I get a loan against my fixed deposit?

Yes, many financial institutions offer loans against FD.

What is an FD nomination?

An FD nomination allows you to designate a nominee who receives the amount in case of the depositor's demise.

Is FD tax free?

No, FDs are not tax-free. The interest earned on your FD is considered taxable income and added to your overall annual income.

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Disclaimer

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.