What is a Fixed Deposit - FD Meaning, Full Form and Types (2024)

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2 mins Read | 9 Months Ago

What is a FD?

FD full form is Fixed Deposit. It is type of investment in which an individual invests a lump sum amount for a specific period of time with a bank. The amount deposited in the FD earns interest at a fixed rate which is set at the time of the account opening. FD holders can choose to receive the interest earned either monthly, quarterly, half-yearly or annually as per their preference.

Fixed Deposits are popular as they are one of the safest investment options available in the market. The returns are guaranteed and there is no real risk of a capital loss. Moreover, they offer a better rate of interest when compared to Savings Accounts. This makes Fixed Deposits a safe yet attractive investment option for anyone looking to earn stable and predictable returns. Some tax-saving FDs can also help to save taxes.

How does an FD work?

When individuals open an FD Account, they need to deposit a specific amount of money for a predetermined period. The amount deposited should not be withdrawn until the maturity of the deposit. The period of investment can range from 7 days to 10 years, depending on the investor’s preference.

The interest rate offered on an FD depends on the period of investment and the amount deposited. The longer the investment period, the higher the interest rate and higher the interest earned consequently. The interest earned on an FD gets credited in the investor's Savings Account (most banks require deposit holders to have a Savings Account with them) or gets reinvested in the FD at the end of the tenure.

Related Read: Why is Fixed Deposit Important?

Features and benefits of a Fixed Deposit (FD)

• Assured returns: FDs offer fixed interest rates ensuring predictable returns on your investment.

• Flexible tenure: You can choose the tenure that suits your financial goals, ranging from few days to a decade.

• Safety and stability: FDs are considered one of the safest investment options that provide stable growth to your savings.

• Ease of investment: Open an FD through simple online process with minimal documentation.

• Loan Against FD: You can avail loans against your FD at competitive interest rates, up to 90% of the principal FD amount with ICICI Bank.

• Tax deductions: Some FDs offer tax benefits like the 5 years tax saving FD, which qualifies for deductions under Section 80C of the Income Tax Act.

• Senior citizen FD: ICICI Bank offers special FD schemes for senior citizens with higher interest rates.

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• Periodic interest payouts: You have the option to opt for periodic interest payouts helping you to manage monthly expenses.

• Regular income: FDs offer periodic interest payouts making them an excellent source of regular income.

• Capital preservation: FDs protect your principal amount and offer guaranteed returns preserving your investment.

• Diversification: FDs complement a diversified investment portfolio by adding stability.

• Liquidity: Despite the lock-in period, you can access funds in case of emergencies by availing loans or prematurely withdrawing the FD.

These features and benefits make Fixed Deposits a popular choice for risk-averse investors seeking a secure and predictable investment with added liquidity and the option of regular income.

Types of Fixed Deposits

There are different types of FDs available in the market to cater to the different needs of the investors. Some popular options are:

1. Conventional FD:

   This is the most commonly availed FD where the investor deposits a lump sum amount for a fixed period and earns a fixed interest rate. The interest is paid out either monthly, quarterly, half-yearly or annually. With this FD, investors can earn fixed returns to meet a number of financial goals. You can easily open an FD with a bank through Internet Banking or the app. If you prefer transacting in person, feel free to visit your nearest bank branch or get in touch with your Relationship Manager.
   FDs can also help you in other ways. If you need urgent funds, you can get an Overdraft facility against your FD, withdraw a part of your FD or liquidate it altogether. You can open an FD with a minimum deposit of Rs 10,000 and take out a loan of up to 90% of the principal and accrued interest.

2. Tax-saving FD:

   These FDs provide tax benefits under Section 80C of the Income Tax Act. Investors can claim a tax deduction of up to Rs 1.5 lakh by investing in the tax saving FDs. Investors can earn fixed returns while saving on the taxes. This FD can be opened in the same way as a regular FD.

Remember that the lock-in period is five years and the interest you earn is taxable and deducted at source (TDS). There are no premature withdrawals. You can receive interest payouts on a monthly or quarterly basis or reinvest them into the FD. A great feature of tax-saving FDs is that they can be held in a single or joint accounts.

3. Senior Citizen FD:

   These FDs are for senior citizens above the age of 60 years. The interest rates offered on senior citizen FDs are higher than the regular FDs. Many banks offer an additional interest rate of 0.10% on deposits above 5 years of tenure. The account holders can get a loan against their FDs and can even apply for a Credit Card against the same.

Other types of FDs:

1. Cumulative FD:

   In this FD, the interest earned is reinvested in the FD Account. The principal amount and the interest earned gets paid out at the end of the tenure. This option is best suited for investors who do not need regular interest payouts and want to earn a higher returns on their investment.

2. Non-cumulative FD:

   In this type of FD, the interest earned gets paid to the investor on a monthly, quarterly, half-yearly or annual basis, depending on their preference. This option is ideal for investors who need a regular income stream.

Who qualifies?

In India, the following entities are permitted to open a Fixed Deposit Account:

• Indian nationals
• NRIs
• Minors
• Elderly people
• Company Partnerships
• Companies
• Clubs and Societies
• Single-person business
• Investors (alone or in groups).

Why invest in an ICICI Bank Fixed Deposit?

• Competitive interest rates: ICICI Bank offerscompetitive interest rates, ensuring your money grows substantially over time.

• Flexible tenure: Benefit from choosing flexible tenure, ranging from 7 days to 10 years for strategic financial planning.

• Flexible deposit amount: Choose a deposit amount that aligns with your financial goals and budget.

• Hassle-free online application process: ICICI Bank offers an easy and hassle-free online application process making it easy to start your investment journey.

• Convenient online payment options: Enjoy the convenience of various online payment options, simplifying your deposits and payouts.

Fixed Deposits are a great tool to earn higher returns. However, it is important to research well, compare the interest rates and then choose the one that will meet your needs.