Fixed deposits (FD) are safe investment schemes offered by banks which guarantee regular, guaranteed interest rates. The country's top five banks by market value - HDFC Bank, ICICI Bank, Kotak Mahindra Bank, State Bank of India and Axis Bank - provide annual returns to the tune of 2.50-5.50 per cent to the general public, and 2.50-6.30 per cent to senior citizens, on fixed deposits up to Rs 2 crore. A fixed deposit allows a depositor to park a specific amount of money in the bank for a fixed tenure - also known as lock-in period - at a pre-defined rate of interest. At the end of the tenure, one receives the amount which was invested along with the compound interest.
Here are the current interest rates provided by the country's top lenders:
|Bank||For general public||For senior citizens|
|State Bank of India||2.90%-5.40%||3.40%-6.20%|
|Kotak Mahindra Bank||2.50-5.50||3.00- 5.50|
|(Source: Bank websites)|
Conventionally, FD schemes are one of the safest ways to earn modest returns and ensure stable financial growth, say wealth planners.
Fixed deposits are considered secured investments as they offer guaranteed returns, unlike market-linked investments such as stocks, where the returns fluctuate over time. Banks review their interest rates on fixed deposits from time to time, based on changes in benchmark rates, which are set by the Reserve Bank of India.
FD interest rates are calculated on the principal amount at the very end of the FD tenure. Typically, the tenure of FD ranges from seven days to 10 years, giving the depositor flexibility as per one's requirements. One can also opt for periodic interest pay-outs to manage monthly expenses.
The returns on an FD are fixed at the time of opening the account. Even if the interest rates fall after a fixed deposit is opened, one continues to receive interest at the rate agreed upon.