New investors are flocking to Term Deposits, also called fixed deposits, which has long been known as a safe investment choice. While opening a Term Deposit is virtually simple, there are a few things to consider.
Today’s blog has everything you require to understand Term Deposit, including its types, features, etc.
What is a Term Deposit?
A Term Deposit, also called Fixed Deposit (FD), is a deposit provided by NBFCs (non-banking financial companies) and banks. In a Term Deposit, one is allowed to deposit a lump sum amount with a financial institution or bank for a particular period and at a pre-decided interest rate. This period often ranges from 1 to 10 years. It is one of the most secure investment options in the market. Furthermore, a Term Deposit gives you a slew of extra capabilities, including
- Based on the interest rate last locked in, you may receive interest on the deposited money for the set duration.
- Interest or market rates do not affect the interest rate after being locked in.
- You have the option of earning interest when your Term Deposit expires or regularly.
- A Term Deposit usually comes with a lock-in period of 5 years, if it is a tax saving one. The amount cannot be withdrawn within this time. Only scheduled commercial banks are allowed to take TAX saving fixed deposits.
- NBFCs, HFC like PNB Housing finance ltd do not accept Tax saving term deposits. With PNB Housing, Term deposit comes with a lock in period of 3 months.
Features of Term Deposits
There are certain features of Term Deposits that you should be aware of before investing in them. They include:
- Before you make a Term Deposit, you need to decide on the amount you wish to deposit.
- FD interest rates are never affected by market fluctuations. An FD is locked-in for a set period. If the amount is withdrawn within this time, a penalty is charged.
- The depositor may receive interest on a monthly, quarterly, or yearly basis. In non-cumulative Term Deposits, interest is paid regularly at intervals of agreed-upon frequency.
- As an investment alternative, Term Deposits have limited liquidity.
- The amount that may be put in a Term Deposit account has no maximum limit.
- The documents required for fixed deposit are simple.
Must Read: What Are The Features And Benefits Of Fixed Deposit Account?
How many Types of Term Deposits?
There are many different kinds of Term Deposits in the market. By comparing them, you can select which one is ideal for you. The following list describes two major forms of Term Deposits:
1. Cumulative Fixed Deposit:
- Interest is only accessible at the moment of maturity
- Interval-based interest is not available to users
- Cumulative Term Deposit interest rates are higher
- The tenure of a Cumulative Term Deposit varies from 1 to 10 years.
2. Non-Cumulative Fixed Deposit:
- The rate of interest is paid regularly at an agreed-upon frequency
- The tenure of a Non-Cumulative fixed deposit also ranges from 1 to 10 years.
- Suitable for those who demand a steady stream of interest-based income
Additionally, there are other forms of Term Deposits, such as:
1. Company Deposits:
- Company Fixed Deposits are offered by Financial and Non-Banking financial companies (NBFCs).
- Investors place the deposit with companies for a fixed term with a fixed interest rate.
2. Senior Citizen Term Deposits:
- Offers a higher interest rate than other Term Deposits for 60+ aged people.
- A non-cumulative type Term Deposit is also available which offers interest rates payable monthly/quarterly/yearly.
3. NRI Term Deposits:
- NRIs, PIOs and OCIs with NRO accounts are eligible
- Compared to ordinary savings accounts, this account pays higher fixed deposit interest rates.
- Fixed-term contract
- RTGS or NEFT from an NRO bank account is the preferred payment method.
- NRI can only invest up to 36 months in PNB Housing fixed deposit
4. Tax-Saving Term Deposits:
- Only scheduled commercial banks governed by RBI are allowed to raise TAX saving fixed deposits.
- Deposit of a one-time amount
- These deposits have a lock-in period of 5 years, during which withdrawal or loans are not allowed.
- Depositors can claim tax deduction of up to Rs 1.5 lakh in tax-saving Term Deposits.
- NBFC/HFCs like PNB housing do not provide facilities for tax saving fixed deposits.
Must Read: How to Open Fixed Deposit Account Online?
How Do You Choose the Best Term Deposit?
Here are a few things to keep in mind when choosing the best Term Deposit:
- Choose one that offers the highest interest rate
- Check the credibility of the bank or NBFC offering the Fixed Deposit
- Check for clauses on premature withdrawal
- Look for the most suitable fixed deposit type offered by the financial institution
At PNB Housing, we offer high safety assurance to all depositors thanks to our excellent FAA+/Negative rating by CRISIL and AA/Stable by CARE.
Benefits of Term Deposit
- No TDS on interest income up to Rs. 5000 per financial year
- Loan facility up to 75% of the deposit post completion of 3 months tenure.
- Facility to cancel the Term Deposit prematurely after a 3-month lock-in period
- Nomination facility as per NHB guidelines
- Up to 7.25%* interest rate for cumulative Term Deposits of 120 months and a 10.14% tentative yield to maturity
