What It Is:
A savings product that offers a fixed rate of interest over a fixed period.
Key Terms:
- Principal: The amount you deposit
- Tenure: Period for which money is locked in
- Interest Rate: Rate of return on the FD
- Maturity Amount: Principal + interest earned at the end of tenure
- Premature Withdrawal: Taking out funds before maturity, usually with penalty
- Cumulative FD: Interest paid at maturity
- Non-Cumulative FD: Interest paid periodically (monthly/quarterly)
Key Features:
- Fixed interest rate throughout tenure
- Flexible tenure: 7 days to 10 years
- Low risk, insured up to ₹5 lakh
- Option for monthly/quarterly interest payouts
Benefits:
- Guaranteed returns, unaffected by market fluctuations
- Safe parking for surplus funds
- Good for short-term financial goals
Limitations:
- Lower returns compared to inflation & equities
- Premature withdrawal penalty
- Interest earned is taxable
Types:
- Regular FD: Fixed period, fixed interest payout
- Tax-saving FD: 5-year lock-in, eligible for deduction under 80C
- Senior Citizen FD: Higher interest rates for seniors
Best For
Risk averse goals/investors, short term parking of funds, senior citizens
Did You Know?
More than 50% of household financial savings in India are parked in FDs, making them the most popular savings choice (as per RBI data).
