When it comes to investing, there is often confusion between term deposits and fixed deposits. In reality, there is no difference between the two. Both are the same product, but with different names. Most bankers often use the word deposit, while consumers refer to them as fixed deposits.
Fixed deposits offer more variety in terms of the frequency of interest payments. Fixed-term deposits at the post office only offer annual interest payments, while fixed deposits offer a choice between annual, monthly or quarterly interest payments. Short-term fixed deposits are best for short-term goals, such as 7 days to 2 years, while long-term fixed deposits are best used for goals that require a longer investment period. You can plan their maturity according to your financial objectives to ensure liquidity when needed.
While fixed deposits at banks and other financial institutions offer these benefits, it's important to remember that fixed-term deposits at post offices do not require a tax deduction at source, while the TDS applies to fixed deposits in banks or financial institutions. Accumulated or non-cumulative fixed deposits are also available. Accumulated fixed deposits refer to deposits that allow you to reinvest the interest you earned during the deposit period at regular intervals. A depositor can make deposits into these fixed-term or fixed-term deposit accounts, agreeing not to withdraw funds for a fixed period in exchange for a comparatively higher interest paid to the account.
Investments in term deposits generally have short-term maturities, ranging from one month to a couple of years. A fixed deposit (FD) is a financial instrument provided by banks or NBFC that offers investors a higher interest rate than a normal savings account, until a specified maturity date. Once the term is over, depositors can choose to withdraw money or the profits can be reinvested for an additional term. Fixed or fixed-term deposits in India are even guaranteed by the government through the Indian Deposit Insurance and Credit Guarantee Corporation (DICGC).
Accumulated deposits allow you to combine and reinvest interest with the principal amount, which is beneficial for long-term investments. While you don't have to choose between instruments, since they're the same product with different names, you do have to choose in terms of the fixed deposit you choose. Check several to find a deposit that offers the highest interest rates and meets your other requirements.However, it's important to remember that withdrawals from term deposits are subject to several penalties and also lower interest earnings on the deposit. If you make a withdrawal before the term deposit is due, you may be subject to penalties and lower interest earnings on your deposit.
