What Is a Fixed Deposit? Meaning, Benefits, and How It Works

What Is a Fixed Deposit? Meaning, Benefits, and How It Works

November 10, 2025

Introduction

Fixed deposits have been a trusted and stable investment option for millions of Indians for decades. Whether you are a salaried employee, self-employed professional, or business owner, an FD offers a simple way to grow your savings without worrying about market ups and downs.

In this blog, you will understand why fixed deposits are important, how they work, their benefits, and the different types you can choose from.

What Is a Fixed Deposit?

A fixed deposit is an investment where you put a specific amount of money for a fixed tenure that can range anywhere between 7 days to 10 years. During this tenure, your money earns interest at a rate decided by the bank. At the end of the tenure, you receive your principal amount along with the accumulated interest.

The interest rate is fixed at the time of opening the FD. This makes fixed deposits safe and predictable.

How Does a Fixed Deposit Work?

You deposit money, select your tenure, and the bank locks that money at a fixed rate. You can choose cumulative interest (paid at maturity) or non-cumulative interest (paid monthly, quarterly, or annually).

For example: If you deposit ₹1,00,000 for 5 years at 7% interest, you receive around ₹1,40,255 at maturity.

Features and Benefits of Fixed Deposits

• Guaranteed Returns: Interest rate stays fixed and offers predictable earnings.
• Flexible Tenure: Choose a duration from a few days to several years.
• Safe Investment: Not affected by market volatility or sudden economic changes.

Types of Fixed Deposits

• Regular Fixed Deposit: Standard FD with fixed rate and tenure.
• Tax Saving Fixed Deposit: Comes with a 5-year lock-in and tax benefits under Section 80C.
• Cumulative Fixed Deposit: Interest is compounded and paid at maturity.
• Non-Cumulative Fixed Deposit: Interest is paid out monthly, quarterly, or annually.

Who Can Open a Fixed Deposit?

A fixed deposit can be opened by:

• Resident individuals
• HUFs
• Minors (with guardian)
• Trusts or associations
• Companies or partnerships

Only basic KYC such as ID proof, address proof, and PAN is required.

How to Choose the Right Fixed Deposit?

• Compare interest rates across banks.
• Choose a tenure that matches your goal.
• Check premature withdrawal rules.
• Select a trusted bank for safety.

Why Invest in Fixed Deposits?

FDs are ideal for people who prefer stability and guaranteed returns. They protect capital, are perfect for retirement planning, and offer dependable growth without stress.

They also serve as a financial cushion for emergencies while still earning interest.

Summary

Fixed deposits are one of the best ways to grow savings safely. With guaranteed returns, flexible tenure, and zero market risk, FDs work well for all types of investors. Choose the right bank, tenure, and payout option to make the most of your money.

FAQs

• Can I withdraw FD anytime? Yes, but penalties or reduced interest may apply.
• What if I close FD before maturity? Premature closure usually attracts penalty.
• Can I transfer an FD to someone else? No, FDs are non-transferable, but you can add nominees.
• How do I receive the FD maturity amount? The bank credits it directly to your savings account.
• Is PAN compulsory for opening an FD? Yes, it helps avoid higher TDS on interest earned.