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Key Highlights
- Term Deposits offer short to medium duration, while fixed deposits (FDs) are suitable for medium to long-term investments.
- Fixed deposits typically offer slightly higher interest rates than short-term term deposits.
- FDs provide flexible interest payouts (monthly, quarterly, or cumulative), while term deposits typically pay interest at maturity.
- Term Deposits are typically used for short-term liquidity, whereas fixed deposits are primarily for wealth accumulation.
When it comes to safe and dependable investing options, those looking for steady returns with low risks choose term deposits (TD) or fixed deposits (FD).Although both provide guaranteed returns, there are some minor differences in their features and advantages. Let's decode them.
What Is A Term Deposit?
A term deposit is a financial instrument in which money is deposited with a bank or financial institution for a set period and at a fixed interest rate.Term deposits include different types like fixed deposits, recurring deposits, post office deposits, senior citizen deposits, etc.
Benefits Of Term Deposits
Some of the benefits of term deposits are as follows:
- Ideal for both short and long-term financial planning.
- Conservative investors can benefit from little risk.
- Guaranteed profits over the set term.
- Investors can choose from different types of deposits.
What Is A Fixed Deposit?
A fixed deposit (FD) is a type of term deposit in which funds are locked in for a set period at a guaranteed interest rate. Fixed deposits (FDs) are a popular investment option for consumers seeking long-term financial stability and consistent returns. The interest received on FDs can be paid out periodically or reinvested.There are two main types of fixed deposit - cumulative and non-cumulative. A cumulative deposit pays the interest and principal in a lump sum at maturity. On the other hand, non-cumulative deposits pay the interest over the deposit period and the principal on maturity.
Benefits of Fixed Deposits
Some of the benefits of FDs are as follows:
- Longer tenures lead to higher interest rates and returns.
- Safety and stability with guaranteed returns, regardless of market movements.
- FDs with a 5-year lock-in period qualify for Section 80C deductions.
- Non-cumulative fixed deposit provides regular income.
Term Deposit vs Fixed Deposit: A Comparative Analysis
While FDs are a type of term deposit, there are some differences between the two. Let's check them out -
| Features | Term Deposit (TD) | Fixed Deposit (FD) |
| Definition | Deposit for a specific term with guaranteed returns. | A type of term deposit with a fixed interest rate. |
| Duration | Different durations are available. Can be done for the short term too. | Usually medium to long-term (6 months to 10 years). |
| Interest Rates | Relatively lower for shorter durations. | Higher rates for longer tenures. |
| Payout Frequency | Interest is paid at maturity. | Flexible payout options (monthly, quarterly, cumulative). |
| Taxation | Interest income is taxable under regular income tax rates. | Taxable but eligible for deductions under Section 80C (5-year FDs). |
| Risk Factor | Minimal risk, as returns are guaranteed. | Extremely low risk, with guaranteed returns. |
What Is Better - Fixed Deposit Or Term Deposit?
The decision between FDs and term deposits is based on your financial objectives, investment horizon, and liquidity requirements.You can choose FD for long-term investing choices if:
- You prefer higher interest rates for longer tenures.
- You prefer flexible interest payments for consistent income.
You can choose a term deposit (TD) as a short-term investing alternative if:
- Liquidity is a priority.
- You are temporarily depositing surplus funds for guaranteed returns.
Taxation Of FDs and Term Deposits
You should know the tax implications of both FDs and term deposits:
- Tax Deducted at Source (TDS) : If interest income exceeds ₹40,000 in a fiscal year (₹50,000 for senior citizens), TDS would be deducted @10%.
- Tax-saving FDs : These have a 5-year lock-in and are eligible for deductions under Section 80C.
Note : Regular term deposits, unlike tax-saving FDs, do not provide tax benefits.
Make the Right Choice
Understanding the distinction between a fixed deposit and a term deposit will assist you in making sound financial decisions. By comparing rates and features, you can select the best investment to maximise your savings over the long run. Also Read: What is a Fixed Deposit (FD)? Meaning, Definition & Benefits
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
