Term Deposit vs Fixed Deposit: Which One To Choose?

Knowing the features of term deposit vs fixed deposit can give you valuable insights and help you make the right investment. Both these options have some common features, like:

• Fixed deposit amount 
• Fixed period of investment 
• Predetermined interest rate 

However, there are some differences between them like lock-in periods, interest rates and others. Knowing the difference between FD and term deposit is crucial to investing in a saving scheme according to your goals. Read on to know how you can choose between these options to leverage your savings for excellent returns.

Guide to an FD and How It Works

It is a kind of investment which allows you to earn a fixed interest rate for your chosen tenure. These terms and interest rates vary depending on the financial institution. The lock-in period can be between seven days to ten years.

You should note some of its features as mentioned below:

• You have to make a one-time lump-sum deposit
• It offers you the chance to benefit from compounding interest 
• It guarantees a return on the fixed amount throughout the fixed term
• Some fixed deposit account allows you to draw before the maturity due date by charging a certain penalty
• You can also apply for a secured credit card against it, which uses your deposit as collateral 
• You can consider it a good investment option in comparison to your savings account as it gives high interest with lower risk 
• Depending on your investment terms, you can also earn regular income on your investment 
• You can also take a loan against it while your deposit continues to earn interest

Also Read: Fixed Deposit Interest Rates at SBI Bank

Understanding a Term Deposit and How it Works

In many ways, it is similar to an FD. With a term or time deposit, you invest a fixed amount for a fixed period to get a fixed interest rate. This type of term deposit allows you to invest for a shorter period in comparison to an FD. You can choose to invest for a term of one week up to five years.

Here are some other features of term deposits:

• It requires you to make a one-time lump-sum investment
• It attracts a penalty upon breaking the investment before the maturity period
• If your starting principal is high, it can attract a high interest rate

Similarities and Differences Between Term Deposits and Fixed Deposits

Check out some reasons why you should consider opting for these schemes: 

• Both attract penalties if you withdraw before the deposit matures
• Both are safe investments ideal for risk-averse investors
• Both term deposits and fixed deposits give you tax benefits if you invest for 5 years
• Both these deposits are covered by insurance under Deposit Insurance and Credit Guarantee Corporation 

Now that you know the common benefits, here are the differences between them. 

• Term deposits allow you to invest for a shorter tenure 
• Term deposits may have a higher interest rate than an FD, but this depends on the financial institution 
• You can get more flexibility with a fixed deposit in terms of tenure as you can invest for a few days to years
• You can get a loan of up to 90% of the FD, but the loan amount against a term deposit may be lower 

Also Read: Callable FD Vs Non-callable FD

Whether you choose an FD or a term deposit, both provide you with a flexible and customisable way to invest safely. If your funds are locked in, try not to withdraw so that you can continue to earn interest at the predetermined rate. If you need funds during this time, the Fibe Cash Loan is a smart option. You can get up to ₹5 lakhs without end-use restrictions and affordable interest rates. 

You can also foreclose your loan at no added cost and get a comfortable tenure of up to 36 months to repay. Moreover, you can apply on our Personal Loan App online with minimum documentation on meeting simple eligibility criteria. 

FAQs on Term Deposit and Fixed Deposit

Are TD and FD the same?

A term deposit and fixed deposit are different investment options. In fact, an FD is a type of term deposit. While they both require you to make a one-time investment for a fixed tenure and interest rate, their similarities end here. A term deposit has a shorter tenure and may offer a higher interest rate. On the other hand, you can invest in FDs for the long term. 

Which is better: a term deposit or a recurring deposit?

A recurring deposit is a kind of term deposit, which allows you to make regular payments and earn a decent interest. A term deposit may offer you higher interest, but a recurring deposit doesn’t require you to invest in a lump sum. So, you can choose between them based on your savings and needs. 

Are term deposits and fixed deposits covered by insurance?

Yes, both term and fixed deposits are covered by insurance under the Deposit Insurance and Credit Guarantee Corporation (DICGC). This applies to all deposits issued by commercial and cooperative banks.