How does the FD minimum period differ across various FD types?

By their very nature, investment strategies are both predictive and temporal. Over time, as an investor, you could choose to tweak your investment or follow the ‘don’t fix it if it isn’t broken’ strategy. Since we always look at investments from the lens of their period, the minimum investment period becomes an important criterion for choosing an investment.

A Fixed Deposit is one of the most secure investment options, as their returns remain unaffected by market volatility. Nevertheless, it is important to factor in your investment horizon and the type of FD that is most suitable for you, before making the final decision. In the following sections, let us explore the categories of Fixed Deposits available in India and delve deeper into the possible variations of their investment tenures. If you want to get an estimation of potential returns an FD calculator can be a useful tool, helping in your decision-making process.

What are the different types of fixed deposit investments?
 

In our collective conception of fixed deposit accounts, an evocation of the term reminds us of ‘domestic fixed deposit accounts’ – the ones for which we, in India, opt to grow our wealth over time. However, there are various other types of FDs, as we shall see in this section. Here are the other types of fixed deposit accounts, the minimum FD period for each of which is different from that of domestic fixed deposit accounts:

· Standard fixed deposits
 

Most banks and financial institutions offer standard fixed deposit accounts in which you can deposit money in lumpsum for a fixed tenure at certain interest rates provided by the bank. Once the tenure ends, you receive your invested amounts along with accrued interests. The tenures for standard fixed deposits range between 7 days to 10 years. 

· Tax-saving fixed deposits
 

These fixed deposits aim to offer tax benefits of ₹1.5 lakhs every year under Section 80C, of the Income Tax Act 1961. If you are more focused on saving taxes than earning returns, these accounts are a viable option  . A typical feature of these deposits is they have a lock-in period of 5 years While this feature in itself may look like a constraint, there is a benefit as well, of pushing for a disciplined savings and interest income since it does not allow you to break the deposit before 5 years.

Additionally, you don’t receive overdraft and credit facilities on tax savings FDs. However, it is to be noted that the tax benefits are only applicable for first year.

· Senior citizen fixed deposits

As the name suggests, these fixed deposits are designed for senior citizens and retirees aged 60 years and above. Usually these accounts offer 0.5% higher interest rates compared to standard fixed deposit accounts while in case of some banks it may vary. The investment tenure for these FDs varies between 7 days to 10 years.

· Cumulative fixed deposits
 

Similar to standard deposits, a  cumulative fixed deposit pays interest only after maturity. However, the interests are accrued at regular intervals and added to the principal amount. The amounts in the cumulative fixed deposits experience compounding interests, so they are suitable for long-term investments. Their tenure is similar to that of a standard fixed deposit.

· Non-cumulative fixed deposits
 

In contrast to a cumulative deposit, non-cumulative deposits pay out interest at regular intervals. You can choose a monthly, quarterly, half-yearly or annual interest payout period at your convenience as offered by the banks. Individuals requiring a regular income for bills and EMI payments can opt for a non-cumulative fixed deposit. Usually, these accounts have an investment tenure ranging between 6 months to 5 years.

· Flexi-Fixed deposits
 

Also known as sweep-in FDs, these accounts offer the liquidity of savings accounts while providing the interest rate of an FD. You can withdraw funds when needed and deposit surplus savings at your convenience since they are directly linked to your savings account. Depending on banks, you can get variable tenures ranging up to 10 years.

· NRI deposit accounts
 

Like citizens, NRIs also get to open a deposit account if they own an NRO or NRI account in an Indian bank. The interest rates on these accounts may vary depending on the bank. Tenures for an NRI account are similar to that of a standard deposit account.

What is the minimum period for an FD?

A fixed deposit minimum period is the least amount of time for which you can remain invested in any investment scheme. For domestic fixed deposit accounts and NRO FD accounts, the minimum period is 7 days. However, the minimum deposit period may vary from one month and 6 months to up to 1 year depending on the type of fixed deposit account.

What is a premature withdrawal, and to which type of FD does it apply?
 

One of the well-known strengths of a fixed deposit investment is its flexibility. This reflects the minimum investment period we discussed in the previous section. Very few investment instruments are as flexible as FDs, and as reliable in terms of returns.

However, the flexibility of a fixed deposit investment is often reflected in an investor’s ability to opt for a premature withdrawal. The term is self-explanatory – an instance of the investor withdrawing their investment income in a fixed deposit scheme before the maturity period is over is called a premature withdrawal. Do note that you would have to incur a penalty for a premature withdrawal. To add to this, the bank in question, in the case of a premature withdrawal before the minimum investment period, is not liable to pay the interest accrued to the account holder.

IDFC FIRST Bank offers penalty-free pre-mature withdrawals for senior citizens. In addition, the accountholders get one of the best and competitive FD interest rates in the industry along with flexible tenures ranging between 7 days to 10 years. With a simple online application, you can open a fixed deposit account effortlessly.

The minimum period has a bearing on any investment instrument and its ability to generate returns. When it comes to any fixed deposit investment, it is always prudent for the investor to know about its minimum investment period, the interests offered, and the projected returns in advance to make an informed decision. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.