What is a Term Deposit? Are Fixed Deposits and Term Deposits the Same?
A term deposit is an investment in which a lump sum is invested with interest in a financial institution for a specified period of time, between a few months to a few years. Examples of term deposits include fixed deposits and recurring deposits.
In most financial institutions, such as banks, the terms 'term deposit' and 'fixed deposit' are usually used to refer to the same type of financial investment wherein a fixed amount of money is invested for a specific period at a predetermined rate of interest. Term deposits or fixed deposits are one of the most popular investment methods since they are zero-to-low-risk investments and have guaranteed returns that serve as a form of income for many people, including senior citizens.
Explore the differences between term deposits and fixed deposits and how they can best be used for your financial needs.
What are Term Deposits?
A term deposit is a form of investment offered by banks and other financial institutions. They are popular since they provide an attractive interest rate and allow customers to save long-term while protecting their capital from market fluctuations. It encompasses both fixed deposit and recurring deposits.
Term Deposit Interest Rates
The bank pays you a pre-determined fixed interest rate at maturity, depending on your chosen tenure when opening your account. This can range from 6% p.a. for short-term deposits to 8% to 9% p.a. for longer terms such as 5 years or more. This makes it one of the most attractive savings products available today since it provides both security and returns.
Term Deposit Withdrawals
At maturity, you can either withdraw all your funds or reinvest them in another term deposit or investment product offered by your bank or financial institution. When it comes to withdrawals, make sure it is not before the maturity date because banks may levy early closure fees.
How to Open a Term Deposit?
To open a term deposit, you must approach your chosen bank or financial institution for details about their accounts and eligibility criteria. Once you have decided on an account, you must make an initial lump sum deposit into your account, which will be locked in until the maturity date. You can choose from different tenures ranging from 3 months to 5 years, depending on your needs and preferences.
Features of Term Deposits
When it comes to investments, you want to ensure that your money is safe. That is why a term deposit is one of the best options to earn high returns on investments. A term deposit offers the following numerous benefits:
- Security and Stability
A term deposit provides greater security than other forms of investments since it guarantees that the principal amount will be returned at maturity. This helps to protect you from market volatility as the value of your investment remains fixed until maturity. In addition, deposits with banks are covered by Deposit Insurance and Credit Guarantee Corporation (DICGC) up to ₹1 lakh per depositor per bank. As such, you can be assured that your savings are secure.
- High Interest Rates
Term deposits typically offer higher interest rates than savings accounts or other investments. This means your investments will grow faster, allowing you to reap greater rewards over time. The interest rate on term deposits is also quite competitive compared to other instruments available.
- Flexibility and Accessibility
Investing in term deposits offers flexibility since you can choose between tenures ranging from 7 days to 10 years, depending on your financial needs. You can also easily access your money within 7 days before maturity without any penalty using the premature withdrawal facility provided by some banks. In addition, some financial institutions allow you to transfer your funds from one account type to another without additional charges or hassle, making them highly accessible for investors who need quick access to their money without incurring hefty penalties or fees associated with other investments like mutual funds or stocks.
Are Fixed Deposits and Term Deposits the Same?
Fixed deposit (FD) and term deposit are often used interchangeably since they both refer to a type of investment offered by banks and financial institutions. A fixed deposit is a form of investment in which an individual deposits a lump sum of money for a fixed period, usually ranging from a few months to several years, at a fixed interest rate. The interest rate is pre-determined and remains constant throughout the tenure of the deposit. At maturity, the individual receives the original amount and the accrued interest.
A term deposit, on the other hand, is a broader term that encompasses all deposits made for a fixed period. This can include fixed deposits, recurring deposits, tax-saving deposits and other types of deposits offered by banks and financial institutions. All fixed deposits are term deposits, but not all term deposits are fixed deposits. The term "term deposit" is more commonly used in official banking terminology, while "fixed deposit" is used to refer to a specific product. Regardless of the terminology used, both fixed deposits and term deposits offer a relatively safe and secure way to earn a fixed return on one's savings. As a result, they are particularly popular among investors seeking a low-risk investment option.
Things to Keep in Mind While Investing in Term Deposits or Fixed Deposits
- Maturity and Early Withdrawal
With a term deposit, the invested amount of money must be kept for a pre-determined period before it can be withdrawn. The tenure typically ranges from a certain number of days to several years, depending on the financial institution offering the account. Premature withdrawal is possible with these types of investments. However, there will be a penalty payment if the money is withdrawn before the date of maturity.
- Interest Rate
FDs usually offer higher rates than other types of investments such as recurring deposits. However, this also depends on market conditions and factors such as the deposit duration. In general, the longer your tenure, the better your interest rate on a term deposit.
- Tax-Saving Feature
Tax-saving deposits can help you achieve your investment goals with some of the best interest rates available in the market. In addition, its tax-saving feature helps you take advantage of the multiple tax-related benefits offered.
- Pay-Out Options
Depending on your financial situation, you may want to receive the returns on your term deposit at maturity or frequent intervals such as monthly, quarterly, half-yearly or annually. Using the Shriram Fixed Deposit Interest Calculator can help you determine your returns depending on your pay-out options.
Investing in Shriram Fixed Deposit is an excellent way to earn higher returns ranging up to 9.40%* p.a. inclusive of 0.50%* p.a. for senior citizens and 0.10%* p.a. for women depositors. With attractive interest rates, hassle-free application, minimal documentation and flexible tenures, it is an ideal option for you to invest in.
Most financial institutions use the terms 'term deposit' and 'fixed deposit' to refer to the same type of investment. A term deposit is an investment instrument in which an investor deposits a particular amount of funds into an account for a fixed amount of time. These types of investments offer attractive returns and can be used for savings and wealth creation.
Starting a Shriram Fixed Deposit is simple online process that can be done within 5 minutes. You can customise your deposit with options like auto-renewal or auto-withdrawal before you begin.
FAQs
1. What is a term deposit?
A term deposit is a financial product that involves depositing money for a fixed period, at a fixed interest rate.
2. Are term deposits and fixed deposits the same?
Term deposits and fixed deposits are two terms for the same type of investment.
3. How does a term deposit work?
A term deposit works by allowing an individual or business to deposit a sum of money during which the funds are not accessible. The deposited funds accrue interest at a fixed rate for the term.
4. Are there different types of term deposits?
Yes, term deposits can vary in terms of the length of the deposit period, the interest rate offered and whether the interest pay-out is upon maturity or regularly. The most commonly known term deposits are recurring deposits and fixed deposits.
5. Can I withdraw money from a term deposit before the end of the term?
In most cases, withdrawing money from a term deposit before the end of the term will result in a penalty, such as a fee or loss of interest.
Key Highlights
- A term deposit is an investment of a sum of money with interest for a specified period of time, between a few months to a few years. Examples of term deposits include fixed deposits and recurring deposits.
- In most financial institutions, such as banks, the terms 'term deposit' and 'fixed deposit' are usually used to refer to the same type of financial investment.
- Term deposits are popular since they provide attractive interest rates and allow customers to save long-term while protecting their capital from market fluctuations.
- FD (Fixed Deposit) and Term Deposit are often used interchangeably since they both refer to a type of savings account offered by banks and financial institutions.
- Term deposits may offer higher interest rates than other deposit accounts, such as savings accounts, due to the fixed nature of the investment.
