Have you heard, Indian parents are willing to risk 64 % of their retirement savings to fund their children’s education abroad? Though the increase in this statistic reflects a favorable trend, it also raises knowledge of safe and credible investment alternatives to support one’s future. One such option is the Fixed Deposit (FD), which comes in different types of fixed deposits, is clearly defined, promises fixed returns, and has very low risk factors associated with it.
However, there is a small catch, not all types of fixed deposits are created equal. t’s important because the choice of one affects your financial growth in a big way. This blog will help you understand the 6 types of fixed deposits and the right choices to make for high returns.
What is a Fixed Deposit?
Fixed Deposit, also referred to as a term deposit, is a product wherein one invests a certain amount of money for a certain period in exchange for certain percentage interest rate. Essential characteristics of an FD are the promised return on investment which is why they are preferred by the cautious clients.
Advantages
Fixed Deposits Investment as an avenue for generating some income has the following advantages.
Guaranteed Returns: Unlike stocks or mutual funds investment or any other form of investment, Fixed Deposits secure definitely an assured return that does not get affected by the market phenomena.
Capital Preservation: The principal amount is fully secure; therefore, it will suit the risks-averse investor perfectly.
Low Risk: FDs are with low risk profile which ensures investors to park their funds during stock market fluctuations.
2. Types of Fixed Deposits
It is vital to consider the various types of fixed deposits to be in a position of choosing the right instrument to suit its objective. Now, let’s discuss the 6 various types of Fixed Deposits that exist for Indians.
2.1 Cumulative Fixed Deposit
Cumulative fixed deposits reinvest interest gained, taking advantage of compound interest. This strategy can considerably increase returns over time since the interest earned is added to the principle, which yields more interest.
Such types of Fixed Deposits are suitable for those investors who wish to accumulate money over a long period of time because the interest is compounded and results in massive returns.
- Interest Payment: Compounded and paid at maturity.
- Best For: Long-term savers looking for wealth accumulation.
2.2 Non-Cumulative Fixed Deposit
The FD scheme provides attractive interest rates for both, cumulative and non cumulative fixed deposit customers. The Non-Cumulative Fixed Deposit pays the interest amount back at prior time periods which can be monthly, half-yearly or yearly. This is one of the popular types of fixed deposits for any person especially in his or her dusk years, that is a retiree who wants a fixed ensure from his or her investment.
- Interest Payment: To be disbursed on standard periods.
- Best For: Low active investors or those who require for periodic use.
2.3 Flexi Fixed Deposit
A Flexi Fixed Deposit actually takes a little from both the savings account and the fixed deposit. They also have a ‘sweep-in’ facility under which any amount available in your savings account is automatically credits to the FD to fetch better interest rates. This gives cash availability while at the same time guaranteeing that your surplus cash does not stay unutilized.
- Interest Payment: Depends on how much has been swept into the FD.
- Best For: Investors seeking a combination of flexibility and higher returns, as distinct from stakeholders that seek capital appreciation.
2.4 Standard Fixed Deposit
Standard Fixed Deposit is one of the simplest types of Fixed Deposits where a fixed interest rate is provided for the selected fixed term. They are popular because they are easy to understand and not prone to failure, and therefore, best suitable for newcomers to investing.
- Interest Payment: Fixed rate for a set period.
- Best For: Banking and non-banking financial institutions requirements seeking safer security investment alternatives.
2.5 Tax-Saving Fixed Deposit
The concept of Tax Saving Fixed Deposit is a perfect meal for those who are much worried about saving tax under Section 80C of income tax regulation. It has a minimum maturity period of five years, and those planning on investing for a limited period, it is preferable since it will help in minimizing taxes as earnings a steady income.
- Interest Payment: Cumulative, fixed for a period of 5 years, compounded annually.
- Best For: Those in search of saving on taxes.
2.6 Fixed deposit for senior citizen
Especially for customers who are 60 years and above, the Senior Citizen Fixed Deposit has higher interest rates than most ordinary FD prices. This makes it favorable for risk-diversifying retirement income since it guarantees both safety and reasonable income return for the elderly.
- Interest Payment: Higher than regular FDs.
- Best For: Senior citizens looking for stable income with better returns.
2.7 Corporate Fixed Deposit
Corporate FD is available with the companies and Non-Banking Financial Companies instead of bank. While these FDs may earn one more returns than the others, they possess an extra degree of risk. It must be checked how credible the issuing company is before investing because your investment’s safety depends on that company’s credibility.
- Interest Payment: Generally, prime rates are usually higher than bank fixed deposit rates.
- Best For: High return chasers who are willing to take more risk in their investment.
3. How To Go About Selecting The Right Fixed Deposit
The complexity of a fixed deposit relies on factors such as maturity, flexibility, and the risks you are ready to take. Here are some points to consider:
Investment Goals: Long term or short term do you plan to use the money? A Cumulative FD can be suitable if you’re saving for a long-term goal, in contrast, a Non-Cumulative FD may be most appropriate if you require immediate sources of regular income.
Need for Liquidity: If you require regular to your money, a Flexi FD will provide exactly what you need – the ease of a savings account with more benefits and an even better return. Risk
Risk Tolerance: Most FDs are relatively safer; however, a Corporate FD may be more rewarding but charged with risk.
4. How To Open A Fixed Deposit Account
Fixed Deposit account can be opened in a very easy way. Here’s a step-by-step guide:
Select a Bank or Financial Institution: Compare interest rates as well as FD options offered by the banks and NBFC’s.
Choose Your FD Type: Depending on your monetary needs, choice of fixed deposit instrument for investment and liquidity considerate, choose the most appropriate type of fixed deposit.
Submit Required Documentation: Any bank would generally call for identity proof, proof of the address of residence, and a PAN card.
Deposit the Amount: After documentation confirmation, you need to add funds and your FD will be activated and ready to be used. Some of them also provide this account opening online by using the bank’s mobile application as well as the bank’s website.
Conclusion
Fixed Deposits are one of the most effective ways of protecting your money and the good thing is that you get assured return. There are many types of Fixed Deposits, including Cumulative FDs, Non-Cumulative FDs, Flexi FDs, and Tax Saving FDs, and it is prudent to choose one based on one’s investment risk, goals, and perseverance.
For instance, if you are planning for retirement, banking on regular income, under tax savings drive, or just seeking to build wealth over time; there is a fixed deposit to suit your needs. In defining your financial growth path, it is important to comprehend these 6 powerful types of fixed deposits.
Fixed Deposits are a great way to safeguard your financial future. EduFund helps its customers make better financial selections that will help them achieve their goals. Contact EduFund now to learn more about Fixed Deposits and allow us to assist you in selecting the best FD investment for maximum revenue success and financial stability.
