What are Fixed Deposits and how do they work?

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Fixed Deposits, commonly known as FDs, are one of the most popular forms of investment in India. They offer a safe and guaranteed rate of return on your investment, making them ideal for those looking for a low-risk investment option. In this article, we will explore what Fixed Deposits are, how they work, and the different options available for investing in them.

What are Fixed Deposits

What is a Fixed Deposit?

A Fixed Deposit is an investment option provided by banks and other financial institutions. It is a type of savings account where you can deposit a lump sum of money for a pre-determined period, which can range from a few months to several years. The interest rate on the deposit is fixed at the time of investment, and you earn interest on your deposited amount at that rate.

How does a Fixed Deposit work?

When you invest in a Fixed Deposit, you agree to lock your money into the deposit for a fixed period of time. The interest rate offered on your deposit depends on the amount you deposit, the tenure of the deposit, and the prevailing market interest rates at the time of investment.

When you open an FD account, your deposited amount is locked in for the agreed-upon period. The interest on the deposit is either paid out periodically or compounded and added to the principal amount, depending on your preference. Once the tenure of the deposit ends, you can either withdraw your deposit or reinvest it.

How to Invest in Fixed Deposits?

Investing in FDs is a hassle-free process. You can invest in Fixed Deposits through your bank or other financial institutions that offer this facility. To invest in FDs, you need to follow these simple steps:

1. Choose a bank or financial institution that suits your investment needs

2. Decide on the tenure of your FD – this can range from a few months to several years

3. Decide on the amount you want to invest in your FD

4. Submit the required documents, like your ID proof, address proof, and PAN card, to open the FD account.

5. You can choose either to receive periodic payouts of the interest earned or opt for the interest to be reinvested.

Apps for Investing in Fixed Deposits

In today’s digital age, investing in Fixed Deposits through an app is a convenient and hassle-free option. Several banking and financial institutions in India have developed mobile applications that allow investors to open FD accounts, calculate interest rates, and keep track of their investments.

One such app is the Bajaj Finserv app. The app provides a user-friendly interface that allows investors to open FD accounts on their mobile phones quickly. Not only does the app provide a choice of FD tenures and interest rates, but it also helps investors calculate their returns. With the online apps like this, you can compare FD interest rates for senior citizens and get information on the applicable FD tax and TDS rates.

Pros and Cons of Fixed Deposits

Fixed Deposits offer several benefits, such as:

1. Guaranteed returns: Fixed Deposits provide a guaranteed rate of return on your investment, making them a safe and reliable investment option.

 2.Low-risk investment: FDs are one of the most secure investment options and offer low risk.

3. Liquidity: Fixed Deposits offer high liquidity, and you can withdraw your deposit at any time before the maturity date. However, some banks may charge a penalty for premature withdrawal.

4. Tax benefits: Fixed Deposits offer tax benefits under Section 80C of the Income Tax Act, and senior citizens can take advantage of higher FD interest rates.

However, there are also a few drawbacks to investing in Fixed Deposits, such as:

1. Low returns: FDs offer lower returns compared to other investment options like mutual funds and stock markets.

2. Fixed returns: The rate of interest on FDs is fixed at the time of investment and does not change with changes in market conditions.

3. Inflation risk: With rising inflation rates, the interest earned from FDs may not be able to keep up with the inflation, resulting in a diminishing value of savings.


Investing in Fixed Deposits is a wise choice for those who prefer a low-risk investment option with a guaranteed return. With the plethora of options available for investing in Fixed Deposits, investors can make informed decisions about where to invest their money. By using online apps, investors can avail various benefits such as high FD interest rates for senior citizens, compare FD interest rates, and get information on fixed deposit tax and TDS rates, all with a single click.


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