Certificate of Deposit vs Fixed Deposit: A Comparative Study

Certificate of Deposit (CD) and Fixed Deposits (FDs) are investment vehicles that offer fixed returns. While both these instruments provide security, there are subtle distinctions. These can significantly impact your investment and financial strategy. Understanding these tools supports your investment goals.

Difference Between a Certificate of Deposit and Fixed Deposit

Here’s a comparison of certificate of deposits vs fixed deposits based on some important distinguishing factors:

Features	Certificate of Deposit	Fixed Deposit
Minimum investment	₹1 Lakh and and in subsequent multiples of it	Some issuers require a minimum of ₹1,000; though this amount may vary among banks and NBFCs
Tenure	Ranges between a few months and several years	Ranges from 7 days to 10 years
Interest payment	Payouts can be monthly, annual, or at maturity	Payouts can be monthly, quarterly, half-yearly, annual, or at maturity
Liquidity	Less liquid; early withdrawal penalties apply	Options for premature withdrawal with comparatively low penalty; tax-saver FDs have a 5-year lock-in period
Loans Against Deposit	You cannot get a loan against these instruments	You can get a loan against fixed deposits

Benefits of Investing in Fixed Deposits

The following are some benefits of investing in a fixed deposits-

Risk-averse: Earn returns at a fixed interest rate unlike market-linked investments like mutual funds
Fixed Returns: Enjoy assured interest returns that allow your savings to grow at a steady pace over the long-term
Tax Savings: Claim deductions of up to ₹1.5 Lakhs on tax-saver FDs issued by banks or the India Post under Section 80C of the Income Tax Act, 1961
Flexible Investment Terms: Get the flexibility to choose investment terms, such as interest rate and tenure, to earn desired returns

Benefits of Investing in Certificate of Deposits

Investing in certificate of deposits offers several key advantages, including:

Fixed Interest Rate: Remains constant for the entire term of your investment, offering predictability of returns
Diverse Interest Options: Financial institutions offer a variety of CD options with different interest rates and terms

Laddering Strategy: Invest in in multiple CDs with staggered maturity dates to earn potentially higher returns
Security: RBI allows only certain financial institutions, including commercial and rural banks, to issue certificate of deposits

How to Invest in FDs and CDs

Follow these simple steps to invest in FDs on Bajaj Markets-

Click on the ‘OPEN AN FD’ option on the top of the page
Enter your mobile number, date of birth, and residential PIN code
Verify your mobile number with the OTP
Browse through different fixed deposit options and select one as per your needs
Enter the investment amount, select a suitable tenure, and choose a payout frequency
Fill in your full name and PAN Card details
Complete the KYC details, add nominee, and bank details
Make payment to complete the process
Save the confirmation

Tax Implications on FD and CD Investments

Before investing in any of these instruments, understand their tax liabilities to ensure you get maximum returns. Given below are the tax implications on investing in FDs:

The Income Tax Act treats the interest earned on FDs as ‘Income from Other Sources’
It is fully taxable as per the Income Tax Act provisions
If the interest earned on FDs exceeds ₹40,000 (₹50,000 for senior citizens), you will have to pay TDS at 10%
In case your total taxable income is less than the exemption limit, you will not have to pay TDS
You can claim a deduction of ₹1.5 Lakhs u/s 80C by investing in a tax-saving FD

An investment in a CD is also fully taxable under the Income Tax Act.

Fixed Deposit and Other Investment Comparisons
Bonds Vs FD	FD Vs RD	NPS Vs FD
Corporate FD Vs Bank FD	FD Vs Real Estate	PPF Vs FD
Cumulative Vs Non Cumulative FD	Fixed Deposit Vs Life Insurance	Short Term FD Vs Long Term FD
Debt Funds Vs FD	Fixed Deposit Vs Savings Account	SIP Vs FD
ELSS Vs FD	Liquid Fund Vs FD	Sukanya Samriddhi Yojana Vs FD
Equity Vs Fixed Deposit	MIS Vs FD	Time Deposit Vs Fixed Deposit
FD Vs NSC

What are Certificate of Deposits?

Certificate of deposits are fixed-income investment tools that are issued in a dematerialised form. RBI has permitted certain entities to provide these savings accounts. These include the All India Financial Institutions (AIFIs) and commercial and regional rural banks.

Is CD better than FD?

Both these investment avenues have their own set of benefits. While CDs come with shorter tenure options, you can invest in an FD for up to 10 years. The former requires a minimum investment of ₹1 Lakh and in subsequent multiples thereafter. The latter comes with a minimum investment requirement of ₹1,000 but this may differ across banks and NBFCs.

Who should invest in a CD?

You can invest in this investment instrument if you are looking for a low-risk option. This is because the certificate of deposit rates are fixed, allowing you to earn stable returns.

Which option is considered more liquid in case of an unforeseen need for funds?

While both CDs and FDs allow for early or premature withdrawal, it may result in some penalty charges. In case of the 5-year tax-saver FD or non-callable FDs, you will be permitted to withdraw funds until the tenure ends. Hence, you must invest in these investment tools after careful consideration of your liquidity needs in the near future.