A Beginner’s Guide to Understanding Fixed Deposit

Investing money is a crucial aspect of financial planning. In India, there are different investment options you can choose from. But do you know what one of the preferred methods of investment is? It is a Fixed Deposit (FD). Most people prefer investing in FDs, considering the assured return and stability. If you are also planning to invest, you should be aware of the FD interest rates.

As a beginner, various concepts of FD may seem confusing. To ease your confusion, we have provided all the necessary information you need to know about FDs. So, let’s have a look at them.

  What is an FD?

An FD is often referred to as a “term deposit”. It is a financial instrument that many banks offer. Apart from banks, other financial institutions also offer the facility of FDs. When you invest in it, the amount will keep growing after a certain period. The term for an FD can range from seven days to up to 10 years. For the FD you make, you will receive a fixed interest rate on the principal amount. The FD interest rate is generally higher than the savings account interest rate.

  Types of FDs 

There are different types of FD accounts that you can choose from. These include:

● Regular FD: This is the most common type of deposit, where individuals deposit a lump sum amount for a specified duration. The interest rate remains fixed throughout the tenure, and the depositor receives the interest at regular intervals or upon maturity.

● Flexi FD: In this type, individuals have the flexibility to withdraw a part of the deposit amount without breaking the entire deposit. The remaining amount continues to earn interest until maturity.

● Tax-saving FD: This type of FD allows individuals to save on taxes under Section 80C of the Income Tax Act. The deposited amount is locked in for a minimum of five years, and the interest earned is taxable.

  Features of an FD

FDs offer several key features that make them attractive to investors.

● Fixed interest rate: Unlike other investment options, FDs offer a predetermined interest rate throughout the tenure. This ensures a stable and predictable return on investment.

● Assured returns: Since banks and financial institutions back FDs, they offer high security. The principal amount remains intact, and the interest earned is guaranteed.

● Tenure options: Investors can choose the duration of the FD based on their financial goals and liquidity requirements. The tenure can range from a few months to several years, providing flexibility to the depositor.

  How Do FDs Work?

 To open an account, visit a bank and fill out the application form. The process also requires you to submit personal details like your name, address, and ID proof.

However, technology has advanced a lot, and you can open an FD account online with a representative’s help.

Once the account is opened, the depositor transfers the desired amount from their savings account to the FD account. The interest rate is determined based on the deposit amount, tenure, and prevailing market conditions.

Throughout the tenure, interest accrues on the principal amount and is either paid at regular intervals (monthly, quarterly, or annually) or upon maturity. At the end of the tenure, the depositor receives the principal amount along with the accumulated interest if it is not paid out periodically.

  What is the Eligibility for an FD?

Any individual, whether salaried or self-employed, can open an FD account. The eligibility criteria may vary slightly between banks and financial institutions. Generally, individuals are required to provide identification proof (such as a PAN card, Aadhaar card, or passport) and address proof (such as utility bills or a rental agreement).

  Know the Benefits of an FD

Some of the prominent benefits of investing in an FD are as follows:

● Stability and security: FDs are considered low-risk investments as reputable financial institutions back them. The principal amount is secure, and the interest earned is assured.

● Guaranteed returns: Unlike market-linked investments, FDs provide fixed returns throughout the tenure. This makes them suitable for conservative investors who prefer a predictable income stream.

● Diversification of investment portfolio: FDs provide an excellent opportunity for diversifying one’s investment portfolio. By allocating a portion of funds to FDs, investors can balance out the risk associated with other high-risk investments, such as stocks or Mutual Funds (MFs). This diversification strategy helps reduce overall portfolio volatility and ensures a steady income stream.

● Easy accessibility and convenience: FDs offer ease of access and convenience to investors. Opening an FD account is a simple process, and it can be done online or by visiting a bank. Moreover, the interest earned on FDs can be directly credited to the investor’s savings account or reinvested in other FDs, providing a hassle-free experience.

● Senior citizen benefits: Many banks offer special schemes for senior citizens, providing them with higher interest rates compared to regular FDs. These schemes aim to support retirees and individuals in their golden years by offering attractive returns and a secure investment option. Senior citizens can take advantage of these exclusive benefits to enhance their income and financial security.


FDs are an ideal investment avenue for beginners and risk-averse investors. They offer a secure and predictable way to grow savings while providing liquidity options. By understanding the various types, benefits, and eligibility criteria, individuals can make informed decisions when considering FDs as part of their investment portfolio. If you are confused, you can reach out to a financial advisor, who can eventually help you make the right choice in terms of an FD account opening.

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