What Is An Fd? Exploring Fixed Deposits And How They Work In India

By Author: Ravi
Total Articles: 60
Comment this article

When it comes to saving money most people in India think of one trusted option first. That option is the Fixed Deposit or FD. It is simple easy to understand and offers guaranteed returns. Whether you are just starting your savings journey or planning for a future goal an FD can be a safe place to park your money.
In this article let us understand what an FD is how it works and how it compares to other options like bonds investment.
 
What is an FD?
An FD is a financial product where you deposit a lump sum of money with a bank or a non banking financial company for a fixed period. In return you earn interest on that amount. The interest rate is decided at the time of booking and stays the same until maturity. At the end of the term you get back your original deposit along with the interest earned.
FDs are offered by most banks and NBFCs and the process to open one is quick and simple. You can choose how long you want to invest for which could be as short as seven days or as long as ten years.
 
How Does an FD Work?
Suppose you invest ...
... one lakh rupees in an FD for three years at an interest rate of 7 percent per year. This means you will earn seven thousand rupees every year. At the end of three years you will receive your original one lakh plus twenty one thousand in interest. Some FDs pay interest every month or every quarter while others pay it only at maturity. You can choose the one that suits your needs.
FDs are considered low risk because the returns are fixed and your capital is safe. Most bank FDs are also insured up to five lakh rupees under the Deposit Insurance and Credit Guarantee Corporation.
 
Why Do People Choose FDs?

Safety
FDs are known for being safe. Your money is protected and the returns are guaranteed.
Simplicity
There are no complex terms or conditions. You deposit your money and earn interest. It is as simple as that.
Flexibility
You can choose the duration based on your financial goals. Whether you want to save for a short term need or for a longer period FDs can be adjusted accordingly.
Suitable for All Ages
From young earners to retired individuals FDs are a popular choice across age groups because of their predictable returns.

 
FDs vs Bonds Investment
Many people also consider bonds investment when looking for safe options. While both FDs and bonds offer fixed returns there are some key differences.

FDs are usually offered by banks and NBFCs while bonds are issued by companies or the government.
Bonds can offer higher returns than FDs but they may carry more risk depending on the issuer.
Some bonds can be traded on exchanges while FDs cannot be sold before maturity unless you break them early.
FDs are better for those who want peace of mind and no market-linked risks. Bonds may suit those who are willing to take slightly higher risk for better returns.

 
Things to Keep in Mind
Before booking an FD always compare interest rates across banks and companies. Also check the penalty for premature withdrawal in case you need your money early. Some FDs also offer tax saving benefits under section 80C if you choose a five year lock in option.
 
Final Thoughts
An FD is one of the most trusted and easy ways to grow your money in India. It offers guaranteed returns flexibility and peace of mind. While bonds investment may provide higher income in some cases an FD is still a strong choice for those who value safety and simplicity.
If you are starting out or looking to balance your portfolio FDs can be a great foundation for your financial plan.