How Fixed Deposit Works

How Fixed Deposit Works

There was a report by SEBI that said 95% of Indian families chose to invest in a fixed deposit over the stock market funds. Why wouldn’t people choose it? It’s safe, it is secure, you can save over a lakh for a year and still have tax benefits, and the list can go on. But before we find out how Fixed deposits have always been the choice of investing for Indians, let us first get our knowledge about this topic. So, starting from scratch, here we go!

Let’s go on and know the roots of this subject.

What is a Fixed Deposit?

A fixed deposit is when you put in a lump sum amount in a bank for a fixed tenure. The deposit you make stays in that account, called the fixed account, for the period that you have chosen. So, while it stays in that fixed deposit account, your money grows, meaning it earns interest. The interest rates are set by the providing banks.

So, if you’ve got a surplus sitting around and want to see it grow – an FD is the best choice.

Features of a Fixed Deposit

  • A customer is eligible to get interested in a pre-decided tenure according to the lock-in period, unlike stock investing.
  • The interest rates of fixed deposits do not change irrespective of the market conditions.
  • The interest that is offered is credited at the time of maturity or periodically.
  • You can prematurely withdraw only in the case of an emergency with a penalty.

How does an FD Work?

The amount that you invest in a fixed deposit account stays locked in for the pre-decided period. The bank would let you invest your money anywhere from 7 days to 10 years. At maturity, the money can also be reinvested if preferred. But at maturity, the bank will credit the entire principal with interest, and it can be withdrawn

How to Apply for an FD

Applying for FD doesn’t mean you walk into the first bank you see and open an account there. Just say you choose to invest in an FD and you come across Bajaj Finance FD – you have to check the Bajaj Finance FD rates, tenure, and much more. The same would apply to any bank you check.

Things to Consider While Applying for an FD

  • Find the banks offering the highest interest rates.
  • Make sure they have a reasonable early withdrawal penalty, so you don’t have to pay a lot.
  • Find out the bank’s other services.
  • It is easier if you have a savings account in the same bank.
  • Make sure you have all your documents in hand.
  • Analyze the tenure you’d want to be invested in.
  • Check the interest rates for different periods.

Process of Applying for FD Online

  1. Choose a bank’s FD you want to invest in.
  2. log in to that bank’s net banking or banking application.
  3. Locate the FD section.
  4. Fill in all of your details with the required documents.
  5. Once this is done – you can debit the cash from your account into the FD account, and it has been created.

Process for Applying for FD Offline

Follow these steps to do the process offline.

  1. Go to the bank branch you choose.
  2. Ask and fill in the FD application form with the necessary documents and details.
  3. Submit the form to the bank and deposit the amount.

There are different types of FD accounts, and you mostly want to know them before you make your decision.

Types of Fixed Deposits

1. Cumulative FD

This scheme gives you returns at maturity and is most suitable for individuals who want to set aside savings for their financial goals because it has the feature of compounding interest.

2. Non Cumulative FD

This is the type of deposit that lets you get returns on a periodic interval. It is suitable for you if you are looking into generating regular income through savings.

3. Systematic Deposit Plan

This plan is most suitable for you if you are looking into starting saving with amounts as small as five thousand rupees.

Advantages to Investing in an FD

  • You will always have an assured rate of return from that investment.
  • There is a tax threshold on interest when it comes to fixed deposits in the country.
  • You have the liberty to choose from a flexible tenure, anywhere starting from 7 days to 10 years.
  • All you have to do is pay a penalty to withdraw your money before the maturity date.
  • When you have a solid FD, you can also take loans against it when you need it.

Though these are the pros of fixed deposits, there are some disadvantages to them.

Disadvantages of Investing in FDs

  • The interest rates aren’t always as good as the stock market.
  • Your funds are locked in, and you need to pay a penalty to withdraw them.
  • The interest rates do not get any higher than how much it was already said to be.


That’s the end of how an FD works. Hope you’ve found your answer. Mostly was not a hard one to answer. FDs are one of the most trusted schemes in the country for several years, until date. So, if you are investing in a fixed deposit – be confident because your money is protected, stable, and growing.

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