Fixed Deposit and its types

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In India, fixed deposit (FD) is one of the most common form of investment. It allows you to invest money for a fixed period of time and most of the time at a fixed rate of interest.

Banks in the country offer fixed rate of interest, which means that the rate of interest will not be change once the entire period of fixed deposit. Some banks like HDFC provide the option of floating rate. Under this option a bank, as in this case, HDFC announces its interest rate every quarter and accordingly the interest rate on the FDs change.

Savings bank account is the normal account where you can put and withdraw your money with your convenience. Its the regular account that all of us open with a bank.

Since, savings account gives interest of only 3.5%, FDs are accepted as a better option, since they give a better return depending upon the time span. A senior citizen will get up to 0.50% higher rate of interest on their FD.

Types of FDs

There are mainly two kinds of FDs, but generally when an individual mentions about FDs we consider it to be a fixed deposit issued by a bank. The other kind of fixed deposit is provided by the corporates.

Bank FDs are offered by banks or non-banking finance companies. Both these institutions are regulated by the RBI, and the deposits up to INR 1 lakh per account are guaranteed by RBI. Corporate FDs are offered by corporates who are looking to raise money from the open market.

Corporate FDs pay a higher rate of interest because they carry a higher risk than bank FDs, since they are not guaranteed.

GoodReturns.in

Read more about: banks, interest, investment, fixed deposits
Story first published: Saturday, March 26, 2011, 15:31 [IST]
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