Finance

What is the difference Between Term Deposit and Fixed Deposit?

Term Deposits offered by the different financial institutions make one of the best options for a safe and secure investment. These are the best for those who are looking for a stable return on their investment. An investor can deposit a lump-sum amount at an agreed interest rate. The time period can vary from less than a month to 5 years or more. 

The invested amount in case of term deposits is kept for a fixed period and can be withdrawn only upon maturity. Since these deposits are kept for a certain period, these are known as Term Deposits.

There is no difference between fixed deposits and term deposits. In fact, fixed deposit (FD) fall under the category of term deposits. There are two main types of deposit options offered by the banks.

  • Demand Deposits
    • Current deposits
    • Savings deposits
  • Term Deposits
    • Fixed deposits: in the case of FDs, the deposit amount is invested for a stipulated period of time. The choice of tenure is flexible and can vary from 7 days to up to 10 years. The rate of interest largely depends on the amount as well as the lock-in period. The FD process is a simple and easy avenue for new investors.
    • Recurring deposits: In the case of a Recurring Deposit, an investor can deposit a fixed amount at fixed intervals. This interval can be 15 days or a month or more.

Different rates of interest are offered by various financial institutions depending on the type of deposit and the time period. The rate of interest differs from institution to institution. You can check out the different financial institutions to find out the highest fd rates you can get for your preferred tenure.

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Which financial institutions offer such term deposits?

  • Banks
  • Post offices
  • NBFCs (Non-Banking Financial Companies)
  • Credit unions
  • Building societies

What are the Characteristics of Term Deposits?

Term Deposits are a great investment instrument with some unique features. Here are some of the characteristics of term deposits:

  • A fixed rate of interest: The interest rate remains unchanged till the date of maturity and is not subject to market conditions or economic changes. 
  • Safest investment option: This is a risk-free investment option.
  • Predetermined time period: You can choose your term as per your convenience. 
  • Interest payment frequency: On maturity or periodic (yearly, quarterly monthly or fortnightly).
  • Easy process: The recurring deposit and FD process is simple and less time-consuming.
  • Loan against deposit: A loan up to 60-75% of the deposit can be availed if required. 

Types of Term Deposit

  • Cumulative deposits
  • Non-cumulative deposits
  • Company Fixed Deposits
  • Sweep-in facility term deposit
  • Long-term deposits
  • Short-term deposits
  • Senior Citizen deposits schemes
  • Children’s deposit schemes 
  • Post office deposit
  • Tax-saver term deposits
  • Recurring Deposits

Such deposits make a good source of safe income with interest earned on them overtime, particularly when you invest for a duration that gets you the highest fd rates. The returns on maturity are assured and are not subject to the state of the economy. Choosing the right tenure is essential to add to your income securely and stably steadily.