Time Deposit vs Fixed Deposit

One of the most popular asset classes that offer guaranteed returns is the fixed deposit. Available for different time periods and with different terms and conditions, a fixed deposit is often considered the safest route for investing. As a result, it is also often the first instrument that investors are advised to invest in. 

However, there are several other terms used alongside fixed deposits that can end up confusing a new investor. You will often hear of time deposits in connection with fixed deposits, which can leave you wondering about the difference between a time deposit and a fixed deposit.

Time deposit vs fixed deposit is a debate as old as the terms have existed. Read on below to learn the difference between the two and assess what works best for your requirements. 

If asked about the difference between a time deposit and a fixed deposit, it is important to remember that both terms refer to the same product. While consumers refer to these deposits as fixed deposits, bankers often call them time deposits since the deposit is made for a fixed period of time. Both assets work the same way. To invest in either, you need to deposit a sum of money for a certain period of time. The taxation benefits are also the same for both. The debate over time deposit vs fixed deposit is one conducted in ignorance since both terms refer to the same product. 

Fixed deposits or time deposits in India are even guaranteed by the government through the Deposit Insurance and Credit Guarantee Corporation of India (DICGC). This means that even if the bank declares bankruptcy and its assets need to be liquidated, you are still entitled to get your fixed deposit back. As a result, it is considered as one of the safest investments to make and continues to be popular among all strata of society. 

While banks and other financial institutions compulsorily offer fixed deposits owing to its universal popularity, post office deposit schemes are a little different. Post office schemes are best used as savings accounts similar to fixed deposits, but they are more commonly called time deposits rather than fixed deposits. 

Read on below to assess the comparison of these two similar kinds of instruments. 

As is evident from the table above, there are some subtle differences between post office time deposits and fixed deposits. The fixed deposit with financial institutions does offer certain benefits over the post office safe deposits. These include:

• Fixed deposits offer interest rates that are slightly higher than post office time deposits and even offer even higher interest rates for senior citizens. 

• Opting for auto-renewal of a fixed deposit with a financial institution is significantly easier since only the post offices that offer core banking services can enable the auto-renewal of time deposits. On the other hand, a fixed deposit with a bank or financial institution can be renewed in a matter of minutes online.  

• Fixed deposits offer more variety in terms of frequency of interest payouts. Post office time deposits only offer interest payouts annually while  fixed deposits offer a choice between annual, monthly, or quarterly interest payouts. 

• Fixed deposits also offer more flexibility in terms of tenures. Fixed deposits with banks and other financial institutions offer tenures ranging from 7 days to 10 years, whereas post office time deposits only offer tenures ranging from 1 to 5 years.

• Loans against deposits are a key facility offered with fixed deposits through which you can avail pre-approved loans against your deposits. However, this is a facility not offered by post office time deposits.

While fixed deposits with banks and other financial institutions do offer these benefits, it is important to remember that post office time deposits do not enforce tax deducted at source, while TDS is charged on fixed deposits with banks or financial institutions. Now that you know the pros and cons of each instrument, you can choose as per your requirements.

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