Different Types Of Fixed Deposit Schemes You Should Know About

When it comes to saving and investing money, Fixed Deposits (FDs) are a popular choice among Indian households. FDs provide a secure way to grow your savings while earning a fixed interest rate. However, with various types of Fixed Deposits available in the market, it can be challenging to choose the right one that best suits your financial goals.

In this article, we will walk you through the different types of fixed deposits in India, explaining their features, benefits, and considerations.

Fixed Deposit Variants - Types of FDs

Different FD variants serve different purposes. We have explained their features so that you can make an informed decision while booking an FD.

1. Standard or Regular Fixed Deposits

Standard or Regular FDs are the most common type of fixed deposit scheme offered by banks. The interest rates are comparatively higher than regular Savings Accounts. You can book a regular FD for a tenure spanning from 7 days to 10 years. The interest earned on deposit is subject to tax. The applicable interest rate is predetermined and remains fixed throughout the tenure. Standard Fixed Deposits are the most popular among other types of fixed deposits. 

2. Tax-Saving Fixed Deposits

Tax-Saving Fixed Deposits are specifically designed to help individuals save on taxes. You can claim a tax exemption of up to ₹1.5 lakh per year under Section 80C of the Income Tax Act. These FDs have a lock-in period of 5 years, during which you cannot withdraw the amount.

Among the fixed deposit variants, Tax-Saving Fixed Deposits stand out for their dual benefit of providing returns and offering tax savings.

3. Digital Fixed Deposits

Digital Fixed Deposits or Online Fixed Deposits allows you to book an FD from anywhere, anytime. Such FDs negate the need of paperwork and branch visits. All you need to do is provide your PAN and Aadhar details, and complete your Video KYC to open a Digital FD. However, you need to ensure you mobile number is linked to Aadhaar.

4. Senior Citizen Fixed Deposit

Seniors are the pillars of the society. Their contributions are immeasurable when it comes to the economic development of the society. As a gratitude, banks offer additional interest rates to senior citizens, usually 0.50% above the normal FD rates. Individuals aged 60 years and/or above are eligible for this FD. 

5. Callable Fixed Deposits

Callable Fixed Deposits are normal bank deposits that offer premature withdrawal of FD, albeit with a certain penalty. Let's understand this with an example. Let's say you have booked an FD with Ujjivan SFB for 1 year. The applicable interest rate is 8.25%. However, due to a medical emergency, you're compelled to withdraw the amount before 6 months (95 days). 

The prevailing interest rate for a 90 days to 179 days tenure with Ujjivan is 4.75%. So, you're eligible for the prevailing rate, which is 4.75%. However, a 1% premature FD withdrawal penalty fee would be imposed on the prevailing rate. So, you the final interest rate you would be eligible for is 3.75%. 

Please note that Ujjivan SFB doesn't charge any premature FD withdrawal fee for deposits made after 6 months from the time of opening the account.

6. Non-Callable Fixed Deposits

Non-callable FDs offer higher interest rates than regular FDs, however they come with a pre-determined lock-in period. This means, you cannot withdraw your FD amount before maturity. But there can be certain exceptions where you may be allowed to withdraw your deposit amount subject to terms and conditions. Check with your bank for better understanding.

7. Corporate and Other Fixed Deposits

Apart from banks, companies and financial institutions also offer fixed deposit schemes. The deposits are made with companies for a fixed tenure and a prescribed rate of interest. Corporate fixed deposit schemes may offer higher returns compared to bank FDs but come with additional risk.

8. Cumulative Fixed Deposits

Cumulative Fixed Deposits are deposits that offer interest pay-out at the time of maturity. Long-term FD interest is calculated via the compound interest method. In simple terms, not only the principal amount, the accrued interest also keeps earning interest. This results in higher overall returns.

9. Non-Cumulative Fixed Deposits

If you're looking for a regular stream of income, you may opt for non-cumulative FDs. The interest is paid out periodically, monthly, quarterly and annually. Non-cumulative FDs could be an excellent option for senior citizens seeking a regular flow of income. You can read more about cumulative and non-cumulative FDs here.

Types of Fixed Deposits for NRIs

The following are the two kinds of FDs that can be availed of by NRIs:

1. NRE Fixed Deposits

Non-resident External (NRE) Fixed Deposits are suitable for individuals who wish to leverage their foreign earnings in India. The interest earned is exempt from tax and both the principal amount and interest can be repatriated.

2. NRO Fixed Deposits

Non-resident Ordinary (NRO) Fixed Deposits are perfect for NRIs who have income in India. The interest earned on NRO FDs is taxable at 30% as per the Income Tax Act. You can transfer up to USD 1 million in a financial year.

How to Choose the Right FD?

You can consider the following factors before booking an FD.

1. Interest Rates

Investing in high-interest FDs would help you maximise your savings. Invest in Ujjivan SFB Fixed Deposits to enjoy higher interest rates and a seamless banking experience.

2. Liquidity

Evaluate your financial standing. In case you're in need of urgent cash, go for callable FDs. Such FDs don't come with a maturity period. However, take note of the premature withdrawal fee before booking.

3. Tax Saving

If saving tax is your goal, you can consider investing in Tax Saver Fixed Deposits. You can get tax deduction benefit of up to ₹1.5 lakh under Section 80C of the Income Tax Act with tax-saver FDs. However, the maximum amount you can invest in a financial year is capped at ₹1.5 lakh.

4. Convenience

In this day and age, convenience is the key. Thanks to Digital FDs, you can now say goodbye to boring paperwork and time-intensive branch visits. Use your Aadhaar and PAN details, and complete your Video KYC to open a Digital Fixed Deposit from anywhere, anytime.