In the world of investment avenues, there are several investment plans for us to choose from. So, here we are with a comparison of the two most popular and preferred plans - term deposits vs fixed deposits to make things easier for you.
Before we compare let’s quickly get to the basics of Term Deposits and Fixed Deposits. A term deposit is a fixed-term investment that enables depositing money into an account at a financial institution. Term deposits typically have short maturities ranging from one month to a few years, with varying levels of required minimum deposits. A Fixed Deposit is an investment plan where a person deposits money for 6-months or even a longer period of time. The best part about a Fixed Deposit account is that it provides a higher rate of return than a savings account. It is important for an investor to understand the difference between Term and Fixed Deposit to know which works better for them. Read this article to know everything about Term Deposits and Fixed Deposits.
What is a Term Deposit?
Term deposits are a very safe investment, making them appealing to conservative and low-risk investors. When a bank account holder deposits money, the bank can use that money to lend other consumers or businesses, and banks offer term deposit accounts. A customer will deposit or invest in one of these accounts, agreeing not to withdraw their funds for a set period of time in exchange for a higher rate of interest. This is called Term Deposit.
What is a Fixed Deposit?
A Fixed Deposit is the most popular and safest type of investment because it allows you to invest a large sum of money at a predetermined rate of interest for a set period of time. At the end of the term, you receive the lump sum plus interest, which is a good money-saving strategy.
Term Deposit Vs Fixed Deposit
Now that we are quite familiar with what exactly both Term Deposits and Fixed Deposits mean, it makes things easier for us to compare the features and benefits of both plans and select the best one that works for us.
| Features | Term Deposit | Fixed Deposit |
|---|---|---|
| Tenure | One month to several years | Starts from 12 months to 60 months |
| Premature withdrawal | For premature withdrawal, the depositor is supposed to notify the bank a month in advance and Term deposits cannot be withdrawn early without incurring a penalty or forfeiting all interest earned. | Fixed Deposits can be prematurely withdrawn at any point in time by paying a penalty amount. |
| Interest rate | Term deposit interest rates are typically lower or less attractive than most fixed-rate investments. Term Deposits, on the other hand, pay higher interest rates for larger initial deposits. | The interest rates are comparatively higher than those of Term Deposits. |
| Inflation and market fluctuations | Interest rates do not fluctuate with inflation. | Fixed interest rates, therefore they remain unaffected by market fluctuations. |
| Offered by | Banks | Both Banks and NBFCs (Non-Banking Financial Companies) |
When and where to invest?
Certificates of deposit are another name for term deposits. A penalty will be imposed if a customer wishes to close a term deposit before the end of the term or maturity. This penalty could include the forfeiture of any interest earned on the deposit amount. Closing the CD before the maturity term, allows the customer to recover the principal amount invested but forfeits the earned interest. Therefore, if you have a lump sum in your account that you have no plans of investing or spending for a particular period of time, it is recommended you invest them in a term deposit. But if you need a safe and higher return and would like to invest for a longer period of time with a flexible and easy premature withdrawal in times of financial emergencies, fixed deposits would be the best option for you.
Conclusion
One of the most important aspects of accumulating wealth is saving money. Saving a small portion of your earnings helps you enjoy a quality life. It is critical that you plan your investment strategy way ahead to invest in best options available in the market. You can invest in both the plans because there isn't much of a difference between a term deposit and a fixed deposit. We recommend you to invest in fixed deposit if you want slightly higher returns and more flexibility based on your needs.
Advantages of investing in Shriram Finance Fixed Deposit
- High returns investment: Shriram Finance offers one of the highest fixed deposit interest rates in India, up to 9.40%* p.a.
- Calculate your returns before investing: With the help of Shriram Finance FD interest calculator investors can calculate their returns before investing.
- Flexible Payouts: You can invest your hard-earned money on a monthly, quarterly, half-yearly, and yearly basis for excellent returns, or on cumulative deposits, where the interest earned is compounded monthly along with the principal amount.
- Loan Against an FD: If you book an FD with Shriram Finance, you can always get a loan against it.
FAQs
Which is better, FD or term deposit?
In terms of flexibility and better returns, FD is the best option because in Term Deposits, premature withdrawal can cause heavy losses in the Interest that was earned and the depositor needs to notify the bank as early as a month in advance.
Are term deposits good?
Yes, Term deposits are low-risk investments. But when compared to fixed deposits their returns and flexibility, it is beneficial to opt for a fixed deposit.
Which term deposit is best?
In case you are looking forward to investing in a term deposit, it would be better to consider investing in a fixed deposit.
