What is a Fixed Deposit?
Fixed Deposit (FD) is a term deposit provided by banks where you can invest a lump sum amount and earn a fixed interest rate for a specified period. It comes with assured returns as compared to Savings Account. These deposits prove to be a great option for safe investment and growing your savings. FDs provide financial stability which makes them suitable for achieving long-term financial goals.
What is a Term Deposit?
A ‘Term Deposit’ is simply a deposit that is locked-in for a certain term. By this logic, Fixed Deposits (FDs) and Term Deposits are the same. But that is not all, Term Deposits also cover other products such as Recurring Deposits, Post Office Deposits, Foreign Currency Deposits and Senior Citizen Deposits.
Both terms typically denote deposits made by customers with financial institutions for fixed periods of time at predetermined interest rates. Both are relatively low-risk and are offered by banks and other financial institutions to customers looking to earn stable returns on their savings. Common key features include a fixed tenure, a fixed rate of interest, a maturity date and penalties for premature withdrawals. However, both may vary slightly depending on the financial institution.
Read on to know more about Term Deposits and Fixed Deposits and the differences between the two.
Difference Between Term Deposits and Fixed Deposits
Both Term Deposits and Fixed Deposits offer fixed interest rates, ensuring stable returns. They also provide competitive interest rates and customisable tenures, offering investors greater flexibility.
While Term Deposits may offer varying termination dates and lower interest rates, ICICI Bank Fixed Deposits stand out with comparatively higher interest rates.
Features | Term Deposit | Fixed Deposit |
|---|---|---|
Interest rates | Can have both a fixed or variable rate based on the market conditions | Has a fixed interest rate throughout the tenure
|
Deposit tenure | Varies based on the deposit type | From 7 days to 10 years with ICICI Bank |
Charges on premature withdrawal | Yes | Yes |
Flexibility | More flexible as compared to most FDs | ICICI Bank FDs offer similar flexibility
|
Returns | May yield lower returns | Much higher returns |
Renewability | Cannot be renewed | Can be renewed |
Investor suitability | Short-term investors | Both short and long-term investors |
Tax Implications on Term and Fixed Deposits
Interest earned on Term deposits is taxable as per applicable income tax regulations. Tax Deduction at Source (TDS) may apply if the aggregate interest earned during a financial year exceeds the prescribed threshold limits under applicable income tax regulations. Investors should include interest income in their annual tax filings as required under prevailing laws.
Premature Withdrawal and Penalties
Premature withdrawal rules vary based on deposit amount and tenure. In most cases, withdrawing before maturity may result in reduced interest payout due to revised tenure and penalty, as per policy terms. Certain deposit variants may have restrictions on premature closure.
FAQs
Can I withdraw a term deposit before maturity?
Premature withdrawal may be permitted subject to policy terms. Interest payout may be reduced or penalties applied as per deposit conditions.
Are term deposits taxable?
Yes. Interest earned on term deposits is taxable as per income tax regulations and may attract Tax Deduction at Source (TDS) if thresholds are exceeded.
What is the minimum tenure for a fixed or term deposit?
Minimum tenure depends on product type and bank policy. Tenure options generally range from short-term to multiple years. ICICI Bank offers FDs with a minimum tenure of 7 days.
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