Term deposits and fixed deposits are among the best investment options. Both have different names, but they function in the same way and have the same objective.
Today, in this blog, we will go over both topics in-depth, which will undoubtedly clear up any confusion you may have.
Term Deposit
Term deposit, also known as a time deposit, is one of the best investment options for individuals seeking a consistent and secure return on their money.
In this, an amount of cash is held for a specified period of time and the person is not permitted to withdraw it until the maturity period expires. Because of their specific period of time, the investment is known as a term deposit.
Features of Term Deposit
- Fixed Interest Rate
Term deposits have a fixed rate of interest that is not affected by market volatility.
- Investing Security
As term deposit interest rates are unaffected by economic fluctuations, it is one of the secured investment avenues.
- Deposit Insurance
Any payment of up to Rs. 1 Lakh is eligible for deposit insurance coverage under the Deposit Insurance and Credit Guarantee Corporation (DICGC), according to RBI regulations.
- Minimal Investment
Term deposits can be done with a minimal investment of just Rs. 1000. However, there is no maximum limit set for investment.
Fixed Deposit
A fixed deposit is a form of term deposit. It is a financing facility given by Banks and Non-banking financial institutions (NBFC) that allow individuals to invest. It is deemed as one of the most secure methods of saving for the future, among many others.
FDs allow users to accumulate cash for a set period of time and earn interest either monthly, quarterly, or upon maturity. Fixed deposits come in a variety of durations. It can last anywhere from seven days to ten years. The interest rate on an FD is determined by the length of time the funds are locked in. Commercial institutions like PNB, ICICI, SBI bank’s FD rates are comparatively higher than Savings account interest rates.
Features of Fixed Deposit
- Guaranteed Profits
A fixed deposit’s returns are not affected by market fluctuations. Hence you will receive guaranteed profits.
- Flexible Tenures
FDs come with a flexible duration that varies between 7 days to 10 years. You can choose a tenure as per your requirements.
- Loan Against Deposit
You can get a loan against your deposit in the event of any financial emergency.
- High-Interest Rate
Fixed deposit offers a higher interest rate than most other investment alternatives.
Although both terms serve the same purpose, there are a few differences between them that you must know.
Comparison Between Term Deposit and Fixed Deposit
| Term deposit | Fixed Deposit | |
| Rate of Interest | Varies from bank to bank | Varies from bank to bank |
| Additional Interest for Senior Citizens | No | 0.25% to 0.5% |
| Lock-in Duration | 1 to 5 Years | 7 Days to 10 Years |
| Interest Payment Frequency | Yearly, Quarterly, Monthly | Yearly, Quarterly, Monthly |
| Auto-Renewal | Yes | Yes |
| Loan Against Deposit | 60 to 75% of the deposited amount | Yes |
| Premature Withdrawal | After six months | Anytime |
| Penalty for Premature Withdrawal | Yes | Yes |
| TDS Applicability | Yes | Yes |
Concluding Comments
Term deposits and FDs, both are used differently. Through the above-mentioned features and comparison of both terms, you can now make an informed decision and choose the best option.
