Time Deposit vs Fixed Deposit

There are several secure investment options in the market providing guaranteed returns for different financial needs. Time Deposits or term deposits often allow more flexibility in terms of withdrawal options. Fixed Deposits (FDs) typically provide higher interest rates with limited withdrawal options.

To decide which deposit best suits your financial needs and goals, understanding the difference between term deposits and FD is vital.

A fixed deposit is an investment scheme wherein you invest a lump sum amount into a bank for a specific tenure. In these deposits, the returns are fixed and guaranteed based on the interest rates.

 

You can also open a fixed deposit with a non-banking financial institution (NBFC).  As per the financial institution, you may or may not need to open a separate account for a fixed deposit. According to your tenure, you can get a fixed interest and can withdraw the money upon maturity.

These deposits are one of the go-to options for conservative investors due to their securer returns. Here are a few fixed-deposit features you need to know:

• The tenure of an FD can range from a few days to up to 10 years

• You can choose the frequency of returns on the invested amount: monthly, quarterly, or annually

• If you are a senior citizen, you can earn an additional interest rate, typically around 0.5%, compared to younger investors

• A penalty may apply if you withdraw the FD amount before maturity

• If you wish to reinvest the maturity amount, you can do so after the FD tenure ends

In this scheme, the deposit is made for a fixed period. Banks or financial institutions offer this scheme with a fixed interest rate and predetermined deposit amount.

 

This scheme allows you to invest a lump sum for a fixed tenure, and you should examine the bank's terms and conditions before investing. Make sure to verify the principal amount, interest rate, and maturity amount mentioned in the document.

These are safe investment instruments if you are looking to grow your money steadily. Here are some of its features:

• The interest rate is fixed and disclosed before investing. These rates vary between banks, so it's important to compare them before deciding.

• The tenure can range from 6 months to 10 years. The interest rate is fixed before investing and remains unchanged. Longer tenures typically offer higher returns.

• You may not be able to withdraw the amount before maturity without incurring a penalty or reduced interest.

• These deposits are low-risk and among the safest investment options, with protection from the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to ₹5 Lakhs per bank.

• Ideal if you have low-risk tolerance and want guaranteed returns on your investment.

Compare time deposit or term deposit vs fixed deposit based on these features to understand how they differ: 

Here are a few advantages of opting for a term deposit:

• It is one of the safest investment options 

• The bank returns your principal amount along with the earned interest after the investment matures 

• You can open multiple term deposits to generate additional sources of income

• Usually, a term deposit does not have a fixed maximum limit and can start from a minimum of ₹100 

• If the investment tenure is longer, you can receive higher interest rates 

• You can take a loan of up to 75% of the amount of the term deposit if you urgently need capital

• According to the Income Tax Act of India, a TDS deduction is applicable on the earned interest

Here are some advantages of opting for a fixed deposit. 

• The rate of return on a fixed deposit is both fixed and guaranteed. You can easily calculate the final amount using an FD interest calculator.

• As per income tax guidelines, banks are not required to deduct tax on interest until the specified limit is exceeded.

• Fixed deposit tenures are flexible, allowing you to choose based on your needs.

• You can easily liquidate a fixed deposit online through net banking or by visiting the branch.

• If you need funds urgently, you can take a loan against your fixed deposit, typically up to 95% of the FD amount, depending on the bank.

Here are the differences between a fixed deposit and a post office time deposit:

If you are choosing between a fixed deposit or vs time deposit, it requires a clear understanding of your financial goals and priorities. To make an informed decision, consider how each option aligns with your goals. Use an interest calculator to estimate potential earnings and compare the benefits of each option.

 

Here are some factors to consider when considering your investment options: 

Investment Flexibility

FDs offer flexible tenures and higher interest rates, which could make them a good option if you’re seeking better returns. They require a lump sum investment, which may be ideal if you have funds ready to invest.

Safety and Stability

Since the National Savings Time Deposit is backed by the government, it offers an added layer of security. If safeguarding your principal investment is your top priority, time deposits could be more appealing.

Interest Earnings

Use an FD calculator to estimate your interest earnings under each option. This calculation can provide clarity on which investment aligns better with your financial goals.

Minimum Deposit Requirement

The minimum deposit requirement for a fixed deposit can vary between ₹1,000 and ₹5,000. You can choose an amount according to your finances.

Cumulative or Non-cumulative FDs

There are two types of fixed deposits: cumulative and non-cumulative. In a cumulative FD, interest is not paid regularly but is instead reinvested, with the total interest paid at maturity along with the principal amount. In a non-cumulative FD, you can choose to receive interest payments monthly, quarterly, or annually.

Maturity Time Frame

The maturity time frame is flexible in FD options, ranging from 1 week to 10 years. The time frame can also account for a change in applicable interest rates.

Premature Withdrawal

Some banks may charge a penalty for premature withdrawal, while others may reduce the earned interest. Check the regulations before investing.

Collateral for Loan

You can use your fixed deposit as collateral for a loan. If you need urgent funds, banks typically offer up to 95% of the FD amount. Ensure you understand the final loan amount before applying.

Taxation

Tax saver FDs offer tax benefits under the Income Tax Act of 1961. Deposits up to ₹1.5 Lakhs are tax-deductible under section 80C.

 

Ultimately, your choice should align with your financial strategy, whether you're seeking flexibility, higher returns, or prioritising safety and long-term stability.