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Fixed deposits can give you guaranteed

What Is Fixed Deposit Account? How Does It Work?

Fixed deposits can give you guaranteed

Do you like guaranteed returns on your investments? Of course! Who would say no to assured returns? That's exactly why fixed deposits (FDs) are quite popular among investors. If you are seeking stable returns, fixed-income investments such as fixed deposits can be a reliable strategy.

Banks, post offices and non-banking finance companies (NBFCs) like Shriram Finance offer a variety of fixed deposit schemes. You can compare and learn about fixed deposit accounts that offer the best interest rates. For instance, Shriram Fixed Deposit offer attractive interest rate of up to 9.20%* p.a.

However, before you invest, you should know about fixed deposit accounts and how FD works. We're going to talk about fixed deposit accounts, how fixed deposit works, and what is the FD process. So, let's roll!

What Is Fixed Deposit?

You may wonder what exactly happens when you invest your money in a fixed deposit account. A fixed deposit account is a savings scheme where you deposit a lump sum amount for a fixed time period. You earn interest on your deposit over the selected tenure. When the tenure comes to an end, you get a lump sum amount on maturity.

Features of Fixed Deposits

Here are some of the salient features of a fixed deposit account:

  • Banks, post offices and Non-Banking Finance Companies (NBFCs) offer fixed deposit accounts.
  • The interest on the deposit is fixed throughout the term that you choose. It remains the same even if the market is volatile or if the issuer changes the rates during the term.
  • Interest rates are higher for senior citizens.
  • NBFCs also offer higher interest rates compared to banks and post offices.
  • You can choose the term of the deposit. There are different term options ranging from 7 days to up to 10 years. At Shriram Finance, you can choose the Fixed Deposit tenure from 12 months to 60 months.
  • The minimum deposit amount depends on the financial institution whose scheme you have selected. For instance, Shriram Finance allows deposits starting from ₹5000.
  • Premature withdrawals are discouraged from the fixed deposit account. However, if you withdraw before the term, you might have to pay the penalty for the same.
  • There are two main types of fixed deposits:
  • Cumulative fixed deposits - In this scheme, the interest earned is reinvested. On maturity, you receive the lump sum interest with the deposit amount.
  • Non-cumulative fixed deposits - The interest earned is paid out during the term in this scheme. You get regular income during the fixed deposit tenure. On maturity, the financial institution refunds the deposited amount.

How Fixed Deposit Works

In a fixed deposit scheme, you choose:

  • The deposit amount
  • The type of scheme
  • The deposit term

Based on these choices, the interest rate is fixed. After that, your deposit starts earning interest.

If you have chosen the non-cumulative fixed deposit account, you will receive the interest when it is calculated. For instance, say you deposit ₹10,000 for 5 years at an 8% annual interest rate. You choose the non-cumulative scheme. In this case, you will earn ₹800 as annual interest income from the scheme every year for five years.

On the other hand, if you have chosen the cumulative scheme, the interest will keep accumulating. You will get the interest and the principal amount on maturity. For instance, if you deposit ₹10,000 for 5 years at 8% annual interest, you will get ₹14,693 on maturity. This includes ₹10,000 principal and ₹4,693 interest income.

When the fixed deposit matures, you can get the entire amount with interest. Alternatively, you can reinvest the maturity amount back into the scheme if you want to invest further.

How to Invest in Fixed Deposits

The FD process of investing is quite simple. You can invest in a fixed deposit in two ways:

  • Offline: In the offline FD process, you will have to visit the financial institution's branch office. You can locate a branch nearest to your home or office, visit the branch and fill out the application form. Submit the form with the relevant documents and the deposit amount. The financial institution will verify your documents and open your fixed deposit account.
  • Online: In the online FD process, you have to do is visit the financial institution's official website to open a fixed deposit account. On the website, select the FD scheme that you want to invest in, fill out an online application form and upload your documents. Pay the deposit amount online, and the fixed deposit account will be opened instantly.

Tax Implication of Fixed Deposits

Let's understand the tax implications of fixed deposits, too.

  • Banks and post offices offer 5-year fixed deposit accounts. Investing in these accounts can earn you a tax deduction on your investment up to ₹5 lakhs under Section 80C.
  • Interest earned on fixed deposits is taxable in your hands at your tax slab rates if you are below 60.
  • Senior citizens can enjoy tax-free interest income up to ₹50,000 under Section 80TTB.

The Bottom Line

Fixed deposits are fixed-income instruments that give fixed returns on your investments, even when the markets are falling. You can invest in fixed deposit plans to create a guaranteed corpus for your financial goals. However, before you invest, you should understand what the scheme is all about and how it works.

Though it's a simple process, the knowledge about fixed deposit accounts will help you plan your investment strategy based on your needs. So, understand what is fixed deposit account and then invest accordingly.

If you are looking for a plan that offers attractive interest rates, you must go for Shriram Fixed Deposit. With interest rates up to 9.20%* p.a. (including 0.50%* p.a. for senior citizens and 0.10% for women depositors) you can invest with ease as the minimum investment starts from ₹5,000. Choose from a wide range of tenure options and build a strong investment portfolio.

Invest now and set aside a corpus for your goals.

Key highlights

  • Fixed deposits are saving plans that offer a guaranteed interest rate on deposits throughout the deposit tenure.
  • You can choose the deposit amount, term and type of FD scheme. Based on your choices, the interest rate is determined.
  • Interest, once fixed, remains the same.
  • You can invest in fixed deposits online or offline.
  • A tax benefit is available if you choose 5-year FDs that banks and post offices offer.
  • Interest income is unless you are a senior citizen. For senior citizens, too, the interest income is tax-free up to ₹50,000.


1) What factors affect FD interest rates?

Some of the factors that affect the interest rates of fixed deposit schemes include:

  • Deposit term
  • Age and gender of the depositor
  • Type of deposit - cumulative or non-cumulative

2) Is TDS deducted from FD interest?

TDS is deducted from FD interest in the following instances:

  • If you are below 60 and the aggregate interest earned on bank and post office fixed deposit accounts exceeds ₹40,000. The TDS rate is 10%.
  • If you are 60 and above, and the aggregate interest earned on bank and post office fixed deposit accounts exceeds ₹50,000. The TDS rate is 10%.
  • If you invest in NBFC fixed deposits and the aggregate interest earned is more than ₹5,000. The TDS rate is 10%.

In all the above cases, without your PAN details, the TDS rate doubles to 20%.

However, you can avoid a TDS deduction if your total income is below the threshold limit of ₹2.5 lakhs. To do so, submit Form 15G/H to the financial institution.

3) Is online FD investment safe?

If you invest through reputed websites and mobile apps, online FD investments are safe.

Shriram completes 50 years of service!

To mark this momentous occasion, we have launched Shriram Jubilee Deposit - a 50-month investment scheme.
Invest now and earn up to 9.20%* p.a. (including 0.50%* p.a. for Senior Citizens and 0.10%* p.a. for Women)

Book a Fixed Deposit & get attractive/ high returns