Term Deposit

Banking

Quick Definition

A Term Deposit is a financial instrument where money is deposited for a fixed period at a fixed interest rate, and withdrawn only after maturity.

Detailed Explanation

A Term Deposit (commonly known as Fixed Deposit or FD) is offered by banks and financial institutions where investors lock in funds for a specific tenure ranging from a few days to several years.

Interest rates are predetermined and generally higher than savings accounts. These deposits are governed by guidelines of the Reserve Bank of India.

Key Features of Term Deposit

  • Fixed tenure (7 days to 10 years)
  • Guaranteed returns
  • Fixed interest rate
  • Low risk investment

Types of Term Deposits

[Image comparing cumulative vs non-cumulative fixed deposits interest payment structure]
  • Cumulative FD: Interest paid at maturity
  • Non-Cumulative FD: Interest paid periodically
  • Tax-Saving FD: Eligible for tax deduction under Section 80C

Why Term Deposit Matters

  • Safe and stable returns
  • Ideal for conservative investors
  • Useful for short- and long-term savings

Risks & Considerations

  • Lower returns compared to equity
  • Premature withdrawal penalties
  • Inflation may reduce real returns

Example

"You invest ₹1 lakh in a 5-year term deposit at 7% interest and receive the maturity amount after 5 years."

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