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Fixed Deposit and Term Deposits Which Should you Opt for

Fixed Deposit and Term Deposits Which Should you Opt for

While gearing up for an investment in the right plan; one can probably get held up between the choices of term deposits and fixed deposits. Devised below is a comprehensive guide that draws out the difference between fixed deposits and term deposits and assists investors in making an informed decision.

Difference between fixed deposits and term deposits: A glance

Technically, there is hardly any difference between term deposits and fixed deposits. Some financial platforms define term deposits as a fixed investment made for three months, six months, etc. whereas a fixed deposit is an investment made for more than six months. Both the investment options are guaranteed with no susceptibility to stock performance.

In both the investment options, investors deposit a lump sum for a fixed rate of interest. At maturity, investors receive both the principal amount along with the interest income. When a premature withdrawal is made, the interest income received would be less than the amount promised at the time of depositing. 

FD vs Term deposit options

Listed below are some of the features of popular term deposits and fixed deposits. The taxability of both the deposits remains the same. A TDS is deducted if the interest earned is more than Rs. 10,000. Investors can avoid this by filing form 15 G and 15H forms.

 

Investment Tool Interest rate Tenure Features
Fixed deposits
  • 4% to 8% (NBFCs offer higher interest rates)

 

7 days to 10 years
  • Senior citizens eligible for higher fixed deposit rates
  • Interest rates higher when deposited at NBFC. E.g. pnb housing fd rate is  upto 8.20%
  • Offers flexible tenure through cumulative non-cumulative options 
  • Benefits such as Loan against FD, Premature withdrawal available
Recurring Deposit (RD) 5% to 7.85% Minimum 6 months (after that multiple of 3 months) to a maximum of 10 years
  • Interest credited on a monthly basis
  • Income received lesser when compared to FD
Corporate FD 7.5% to 8.5%, varies based on the lender Same as bank FD
  • Interest earned is higher than FD
  • Due diligence and CRISIL rating to be examined before making a deposit
Government bonds 5.75% to 7% , government-backed investment tool  3 years and above based on the bond
  • Higher returns
  • Liquidity lesser compared to FD
  • Zero risks, since backed by the government
Postal Time deposits 7.7% per annum Same as bank FD
  • Although the interest is compounded quarterly, the payout is made only annually, unlike fixed deposits, which has regular payouts.
  • Entirely backed by the government, the PO offers a high degree of safety of the investment amount. 

 

Final thoughts

There are technically many differences between fixed deposits and term deposits. However, owing to the other added benefits of premature withdrawal and loan against FD options, fixed deposits stand as the better choice.

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