95% of Indians prefer parking funds in a fixed deposit, reveals SEBI survey. But why? Why are this investment vehicles chosen the most despite an abundance of rewarding investment instruments? In this blog, we find out.

Banks and NBFCs provide fixed account deposits as a reliable investment option. Here, you can deposit a big or small sum over a period. Now, at a fixed rate of interest for the duration of the investment, your money will be compounded. The interest rate on FDs is substantially higher than the interest rate on a standard savings account. You can withdraw your funds at the conclusion of the deposit’s term. You can, however, reinvest your funds for a longer period.

The significant benefit is your investment is risk-free as your money isn’t affected by the fickleness of the market. Besides, you can park your money in a fixed deposit for a tenure ranging from seven days to 1.5 years to as high as ten years.

This was a basic analogy of what is fixed deposit.

Why are they so popular?

Choosing a safer form of investment like an FD appears lucrative where the returns are assured. But that’s not it. If you were to calculate your returns with a fixed account deposit calculator, you would get the exact amount guaranteed for you once your FD concludes. An additional merit is that it is insured under DICGC (Deposit Insurance and Credit Guarantee Corporation), formed by the Reserve bank of India. They insure up to Rs. 5 lakhs per depositor.

How does it work?

To accurately grasp what is fixed deposit, understanding how it works is crucial. As the name suggests, it’s a form of investment deposited in an account separate from your savings bank account. The amount is preserved for a specified term where it accumulates interest on the principal sum. The interest earned is added to the account after every specific interval.​​ The FD interest rates are directly impacted by the tenure of the investment and the type of deposit, which brings us to the next point.


Banks and NBFCs offer a diverse range of deposits, including company deposits, senior citizen deposits, tax saving deposits, etc. These are categorized into two kinds- cumulative and non-cumulative.

  • Cumulative

The feature of this category is that they don’t provide interest payout after specific intervals to the investors. The accumulated interest is only available to you at the time of maturity. If you are not looking for a regular interest payout, you can opt for this deposit. The tenure ranges from 1 to 5 years.

  • Non-cumulative

Non-cumulative deposits provide interest payouts to the investor based on their specified interval, monthly, quarterly, bi-yearly, or annually. Due to the nature of the payouts, the FD interest rates offered are subsequently lower. This deposit is best suited for those that require payout as income or otherwise. For instance, senior citizens can opt for this deposit and get a regular interest payout if they don’t have a pension income.


  • Dependable returns

Here, the FD interest rate returns promised while investing is the amount received when your deposit matures.

  • Safe investment

The advantage of investing in this scheme is they are not market-led and are independent of the highs and lows of the stock market.

  • Rate of Interest

The FD interest rates can range anywhere from 2.30% to 7.75% for general citizens. The rate for senior citizens is 0.5-1% above the usual rate. The interest rate offered depends on the financial institution, deposit type, and tenure.

  • Flexibility

Withdrawal of the invested amount is liquid and prompt. Although prematurely breaking an FD can lead to carrying penalties.

  • Loan against FD

Lenders often grant loans if you have an active deposit in their institution, a particularly beneficial step to avoid withdrawing prematurely from the investment.

How to find the right choice?

After learning what is fixed deposit, it is time to know how to make the right choice while investing. Here are a few tips:

  • Conduct comprehensive research of what the market offers before committing to any scheme.
  • Thoroughly compare all the options offered by lenders
  • Decide which type of investment, cumulative or non-cumulative, is best suitable for your needs and financial fitness
  • Research the lender’s credibility, market position, and reasons behind any unusually high offer of ROI.
  • Find a reliable financial institution that provides easy onboarding without hidden costs or terms, good functionality, and superior customer service.


Fixed deposit is undoubtedly one of the oldest and most reliable wealth generation schemes available. Before choosing a deposit, compare FD interest rates and understand the deposit type suited to your needs.

If you’re looking to park funds in a deposit, download Tata Capital’s Moneyfy app and invest your savings today.

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