Different types of Fixed Deposits - Which FD should you choose?

Fixed Deposits (FDs) offered by banks and financial organisations, are popular among investors of all ages for both short-term and long-term investments. In an FD, a lumpsum is deposited for a predetermined period and investors receive a fixed interest amount. 

What are FDs?

Fixed Deposits are a popular choice when looking for a secure investment option for your hard-earned money. You can select a tenure ranging from seven days to ten years, as well as any sum you wish to invest. The amount and tenure of your FD are up to you to decide. 

Types of Fixed Deposit

Here are the various types of Fixed Deposits in India:

1. Standard FD

• This FD allows you to invest a specific amount of money for a chosen period, ranging from 7 days to 10 years.
• You are allowed to choose a tenure that best suits your financial goals, whether short-term or long-term. This FD is ideal for people who wish to gain from a better interest rate (compared to a Savings Account) on their extra funds while still guaranteeing that their funds are safe and immediately accessible. 

2. Tax Saving FD

• A Tax-Saving Fixed Deposit allows you to claim an income tax deduction of up to ₹ 1.5 lakh under Section 80C of the Income Tax Act, 1961.
• This FD has a five-year lock-in period during which the money cannot be withdrawn. This guarantees that the money invested is used for long-term savings objectives.
•  Only one-time lumpsum investment is accepted for a Tax-Saving FD during the account opening. This makes long-term financial planning easier besides offering additional tax benefits.

3. Senior Citizen FD

• This FD is designed for people who are 60 years of age and above.
• Banks give an additional interest rate of about 0.55% (applicable for a period of 15 months to 18 months) over standard FD rates.
• Senior Citizen FD offers a range of tenure alternatives to accommodate the preferences and financial needs of the individual. This guarantees that he/ she has an advantage of better returns on the investments and can efficiently manage the funds.

How to choose the right Fixed Deposit?

Factors to consider when choosing an FD:

1. Tenure and interest rate

Start by comparing bank-to-bank FD interest rates. Interest rates are often higher for longer tenures. Whether long-term or short-term, pick a tenure that fits your financial goals while also taking your liquidity requirements into consideration.

2. Credibility of the institution

Choose banks like ICICI Bank or other financial organisations that have a track record of stability and dependability. Verify customer feedback and credit ratings to make sure your investment is safe. 

3. Flexibility in withdrawals

Evaluate if the FD allows premature withdrawals without substantial penalties. ICICI Bank offers partial withdrawals or loan facilities against the FD, providing liquidity during emergencies.

4. Additional features

Look for added benefits such as nomination facilities, which simplify estate planning and auto-renewal options that reinvest your maturity amount seamlessly.

5. Tax implications

Understand the tax treatment of FD interest. Interest earned on FDs is taxable as per your income slab. Consider tax-saving FDs under Section 80C, if you seek to reduce taxable income by investing up to ₹ 1.5 lakh annually.

6. Comparison and research

Research thoroughly before finalising. Use online FD Calculators to compute potential earnings and read the Terms and Conditions carefully for complete awareness.

Conclusion

When looking for stability and steady returns, investors can rely on FDs. ICICI Bank offers FDs with flexibility and protection, meeting different financial goals including tax savings, regular income and higher interest rates.