A Fixed Deposit (FD) locks your money with a bank for a predetermined period (7 days to 10 years) at a guaranteed interest rate. It's one of the safest investment options in India.
Key Features
- Guaranteed returns — not affected by market fluctuations
- Higher interest rate than regular savings accounts
- TDS (Tax Deducted at Source) applies if interest exceeds ₹40,000/year
Premature Withdrawal
You can withdraw early, but typically face a 0.5%–1% penalty on the interest rate. Some banks offer sweep-in FDs that automatically break portions as needed.
Cumulative vs. Non-Cumulative FDs
A cumulative FD reinvests interest and pays it all out at maturity along with the principal — better for long-term compounding growth. A non-cumulative FD pays interest out monthly, quarterly, or annually — better for retirees or anyone needing regular income from savings.
FD Laddering
Rather than locking all your money into one FD, laddering splits it across several FDs with staggered maturity dates (e.g., 1, 2, and 3 years). This keeps some money accessible at regular intervals without sacrificing the higher rates that longer tenures typically offer.