Last week, the Centre revised the interest rates applicable to three-year term deposit scheme by 10 basis points for the January-March quarter. According to a finance ministry circular, the deposit under Sukanya Samriddhi scheme would attract an interest rate of 8.2 per cent from the existing 8 per cent, while the 3-year term deposit would become 7.1 per cent from the current 7 per cent.
The Post Office Time Deposit scheme offers tenures of 1 years, 2 years, 3 years and 5 years. The interest rate ranges from 6.9 to 7.5 per cent.
What are term deposits?
A term deposit or time deposit is a fixed-period investment option wherein the maturity period ranges from a few months to five years. These are offered by banks, NBFCs, and post office. They have minimum deposit requirements and earns you guaranteed returns with a fixed interest rates. Some of the popular ones are Post Office Time Deposit, Sukanya Samridhhi Yojana, etc.
What are fixed deposits?
On the other hand, fixed deposits are deposits or a period of a few days to 10 years. The deposit amount offers a higher rate of return as compared to the banks’ savings accounts.
Features of term deposits vs fixed deposits
Term deposits, often seen as risk-free investments, offer a fixed rate for the investment period.
These investments are secure and safe.
Investors have the flexibility to vary termination dates due to the availability of multiple maturities, allowing them to build an 'investment ladder'.
The entry investment is low for term deposits like recurring deposits, with a minimal deposit account requirement.
Besides, term deposits incentivise larger initial deposits by offering higher interest rates.
Investors can get a a loan in case of any urgent financial requirement. Most banks offer up to 60 to 75% of the investment amount as a loan.
Term deposits have shorter lock-in periods than fixed deposits.
While choosing the payout options under term deposits, investors can opt to receive them at the end of the maturity period.
They can also go for the non-cumulative payout option, which will offer your earnings periodically. In that case, investors can receive your payout monthly, quarterly, half-yearly or annually, whichever is convenient for you.
Fixed deposits
Fixed deposits, which is a type of term deposit, offer compound interest, which means that interest is earned on the principal amount as well as the accumulated interest.
Fixed deposits have longer lock-in periods in comparison to term deposits.
Fixed deposits allow investors for premature withdrawal before the due date but that comes a penalty.
One can also avail a loan against your fixed deposit, generally up to 90% of the principal amount.
Bank deposits are highly secure with no actual downsides or risks involved, especially when it comes to returns.
The majority of banks offer tax-saving fixed deposit options. By investing in this scheme, you can lower the taxable amount that you have to pay.
As per Section 80C of the Income Tax Act of 1961, if you invest in a Tax Saver Fixed Deposit, you can get a tax deduction of up to Rs 1,50,000.
Liquidating the funds that you have invested in your FD account is extremely simple. The premature FD withdrawal process is quick and simple, and can be done through bank's app.
Post Office Term Deposits
Under small savings schemes, Postal department offers the post office time deposit schemes. Investors can get the option to open a time deposit account for 1, 2, 3, and 5 years. However, account tenure can be extended by giving a formal application to the post office.
Income tax benefits are available only for a 5-year post office time deposit account. Depositors will be able to claim income tax exemptions of up to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961.
Interest rates From 01.01.2024 to 31.03.2024
Period Rate
1 year 6.9%
2 years 7.0%
3 years 7.1%
5 years 7.5 %
