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Types of FD

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Updated: 13-12-2023 06:12:58 AM

Banks and NBFCs offer different types of fixed deposit schemes to service the unique requirements of various customer segments. To make the most of an investment into fixed deposits, prospective depositors must choose a fixed deposit scheme on the basis of their investment horizon, return expectation, liquidity requirements and investment objective i.e.s income generation or capital growth. To help you with the same, here are the types of FDs discussed as below:

Standard Fixed Deposits

Standard Fixed Deposit is a plain vanilla deposit scheme for Resident Indians, Hindu Undivided Families, Sole Proprietorship Firms, Partnership Firms, Limited Companies, Trust Accounts, etc. Banks offer FD tenure ranging from 7 days to 10 years. The interest rates applicable are preset by the bank and are usually higher than the interest rates offered on their regular savings account. With this type of fixed deposit scheme, banks also offer loan and overdraft facilities against the standard FDs. You can also withdraw your money before the FD maturity, though most banks levy penalty charges for such premature withdrawal.

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Tax Saving Fixed Deposits

Tax Saving Fixed Deposit, also known as Tax Saver Fixed Deposit, is only for Resident Individuals and Hindu Undivided Families. The FD scheme allows depositors to claim tax deduction of up to Rs. 1.5 lakh under Section 80C. However, only the principal component qualifies for tax deduction, the interest component is taxed as per the tax slab of the depositor. The features of tax saver FDs are similar to the features of standard FDs with an exception that tax saver FDs have a lock-in period of 5 years, which implies that depositors cannot withdraw their investments prematurely till the tenure of 5 years.

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Floating Rate Fixed Deposits

In a Floating Rate Fixed Deposit, the interest rate is not the same throughout the term but changes in tandem with a reference rate, like the RBI’s Repo Rate or a Treasury Bill Yield. Unlike other types of fixed deposits, the returns on this fixed deposit depends on the movement in the reference rate. This implies that if RBI were to increase the repo rate, the interest rates on floating rate FD will also increase, thereby increasing the returns on the investment without closing or auto-renewing the FD. It also protects one’s investments from the directionality of future interest rates and inflation.

Flexi Fixed Deposits

Flexi Fixed Deposits offer depositors the benefits of both standard fixed deposit and saving or recurring account. With interest rates higher than the rates offered on a savings bank account, this FD scheme gives depositors the benefit of earning more money on their savings and investments. With this FD scheme, depositors can also withdraw their deposits before maturity, thereby, ensuring liquidity in times of financial exigency.

Senior Citizen Fixed Deposit

Senior citizen FD scheme is a special fixed deposit scheme for individuals aged 60 years and above. Under this FD scheme, banks and NBFCs offer an additional interest rate usually of 50 bps over the regular fixed deposit interest rates. There are also some banks and NBFCs that offer additional interest rates of 0.20% to 0.30%, over the additional senior citizen fixed deposit rates. However, these additional interest rates are provided only under certain special FD schemes for specific tenures.

Corporate Fixed Deposits

Corporate Fixed Deposits are provided by Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs). Its interest rates are usually higher than the rates offered on bank FDs. Unlike bank FDs, corporate FDs are not covered under the insurance cover offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), an RBI subsidiary. Therefore, when choosing the corporate FDs, depositors should look into their credit ratings as assigned by recognized credit rating agencies like CRISIL, CARE, ICRA, etc.

Cumulative Fixed Deposit

In a Cumulative Fixed Deposit, the interest earnings are added to the principal amount, giving you the benefit of compounding. Due to this, the depositors get interest payment only at the maturity. This type of fixed deposits are best suited for those looking for long-term investments.

Non-cumulative Fixed Deposit

In a Non-cumulative Fixed Deposit, the interest earned on the principal amount is payable at regular intervals, i.e., monthly, quarterly, half-yearly or annually. Consumers can choose the payout frequency at the time of opening the FD account.

NRE Deposits

Non Resident External (NRE) Fixed Deposit is a tax-free and fully repatriable Indian Rupee deposit account for Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs) who want to earn high returns from their foreign earnings. The principal amount and interest earned on these fixed deposits are exempted from taxation under section 10(4) of the IT Act. For NRE Deposits, the tenure ranges from 1 year to 10 years.

NRO Deposits

Non-Resident Ordinary (NRO) Fixed Deposit is a partially repatriable Indian Rupee deposit account for NRIs and PIOs who want to deposit their income earned through Indian sources. The interest earned on NRO Deposits is subject to TDS (tax deducted at source).

FCNR Deposits

Foreign Currency Non Resident (FCNR) Fixed Deposit is a fully repatriable deposit account for NRI and PIO customers who want to deposit their funds generated/earned overseas. Depositors can transfer funds from their NRE account in India or any foreign currency outside India into an FCNR account. Account holders can open these deposits foreign currencies like USD, GBP, EUR, JPY, CAD, SGD, AUD, CHF, HKD, etc. FCNR Deposits can be held for tenures ranging from 1 year to 5 years. Being denominated in foreign currency, FCNR deposits shield your investment from currency fluctuation risk as inherent in an NRE FD account. Also, the earnings on the FCNR deposit account is exempted from taxation in India.

RFC Deposits

RFC (Resident Foreign Currency) Fixed Deposit allows NRIs and PIOs who are returning to India after being resident outside India for at least a year to deposit their foreign currency funds generated/earned overseas and earn returns on the same without bearing the exchange rate risk. The deposits can be used to make bona fide remittances overseas without any prior approval. The interest rate offered on an RFC deposit account depends on the currency type, deposit amount, tenure and bank.

Callable Fixed Deposit

A Callable Fixed Deposit allows depositors to withdraw their investment before it reaches maturity. However, most banks and deposit-taking NBFCs levy a penalty on closing these FDs before their maturity.

Non-callable Fixed Deposit

While Callable Fixed Deposits can be withdrawn anytime, Non-callable Fixed Deposits can be withdrawn only at maturity. Also, the interest rates offered on this deposit scheme are usually higher than the rates offered on Callable Fixed Deposits.

 

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