Introduction
There is no point in working hard and making money if your money does not work for you while you are sleeping. Having savings in cash is one thing and investing that savings to multiply it is another thing. There are many investment options in India, and one of them is a fixed deposit that a large section of the population favours investing in since it’s less risky. This article is a fixed deposit guide that will help you understand the details of this banking product from a very fundamental level. Let’s get started, and we have covered everything for ease of understanding of fixed deposit for beginners. Here it goes:
What is a Fixed Deposit?
Fixed deposit (FD) is an investment product offered by many banks and non-banking finance companies (NBFCs) in India. It is a product preferred by people who want to secure their savings and earn good returns on them in interest income. The best-fixed deposit plan in India offers the highest rate of interest and offers a customisation option.
This customisation could be concerning the duration of your FD, cumulative and non-cumulative option, multiple options of choosing duration, goal-oriented FDs etc. Fixed deposit for beginners simply means a scheme in which you put a fixed amount for a pre-defined duration, and the bank pays interest to you on the amount you deposited.
Why should one choose FD to invest his money?
Also, FDs are not linked to stock markets, unlike mutual funds, which means there is no risk to your investment. Security of your money, along with good returns (in the form of interest rates), is what makes FD such an attractive investment option in India.
Types of Fixed Deposits
There are two types of FD when we see them from the perspective of interest payment frequency. These are cumulative fixed deposits and non-cumulative fixed deposits.
1. Cumulative FD: This type of FD is where interest is calculated and reinvested in the FD regularly. Thus, the depositor gets the principal and the interest amount together with the FD’s maturity. It is considered the best-fixed deposit plan in India.
2. Non-Cumulative FD This is the one where interest is paid to the depositor at pre-defined intervals. It could be monthly, quarterly, semi-annually, or annually. Whatever interest you have earned in this period is credited to your savings account, or you can collect it as cash from the branch. In this case, you will not be able to enjoy the FD renewal benefits.
Which one should you choose?
If you want some money at regular intervals, the bottom line is to opt for a non-cumulative FD. However, if your purpose is saving money and watching it grow over time, go for a cumulative fixed deposit scheme that benefits the investment renewal. It is because compounding (or compound interest) termed the Eighth Wonder of the World by Albert Einstein is at play in cumulative FDs. Compound interest is interest earned on the earned interest. The interest you earned is re-invested in this type of FD. Just choose the best-fixed deposit plan in India and stay invested till maturity.
Renew or Withdraw at Maturity
The duration of an FD ranges from 7 days to 10 years, and it can be renewed on its maturity for another 5-10 years if the depositor wishes to renew it. Renewing your FD means keeping the total amount at maturity with the bank for additional years. There is a fixed deposit online renewal procedure available on the lender’s website. You can follow that if you wish to renew your FD once it is matured.
In a nutshell, you have two options at your disposal once the FD is matured. You can either choose to withdraw it and take the principal amount along with the interest component (in case of a cumulative FD). The principal amount is the amount you deposited at the start. The second option is to renew it for 5-10 years to gain from the compounding, which is also a type of FD renewal benefits. You can use the calculator for knowing the effect of compounding on your FD if you choose to renew it. There is an option of premature withdrawal and fixed deposits, but that comes with a penalty, usually in a reduced interest rate. Early withdrawal is when you want the money you deposited before FD’s maturity.
| Parameters | Renew | Withdraw |
| Meaning | Extending your FD at maturity for more years | Closing your FD account by withdrawing the total amount |
| Options | Renew the interest component or the principal component or both | Withdraw the entire amount or withdraw interest and renew principal or vice versa |
| Compounding Benefit | Applicable on renewal | Not applicable after maturity |
What happens when you neither withdraw nor renew your Fixed Deposit?
Unlike mutual fund or shares, fixed deposits require very little monitoring since the former is related to the stock market and their price changes every second. However, in an FD, you just have to make the first (and also the last) deposit and then sit back on the couch to watch it grow over the years till its maturity. One word of advice here is that you, as a depositor, must know how to withdraw a fixed deposit that you started years ago.
There is a chance that you forget about your FD that you started years ago, and it has matured now. The worst part is you have not claimed that deposit, and the lender does not know whether you want to withdraw it or renew it further. There are a few rare cases where the fixed deposit guide does not have an answer. Now, the big question is, what happens in such cases?
There is no single answer to that since it depends on one financial institution to another. It may be different for a bank and quite the opposite for an NBFC. Following are the possible scenarios:
- In banks, what usually happens is they are free to decide on your behalf that whether to credit your savings account at maturity or renew it. The bank has a free hand when the fixed deposit is unclaimed. You should thus read the fixed deposit online renewal procedure before depositing your hard-earned money.
- However, if the bank decides to renew this FD and matures again after the tenor, it is still not claimed by the depositor, then the bank will reach out to the depositor. The bank will ask them whether they want to re-invest or withdraw their fixed deposit based on their fixed deposit online renewal procedure.
- Further, if you have changed your contact details or address and no nominee you have assigned, the bank will again renew your fixed deposit at prevailing interest rates. The bank or NBFC will explain this in their fixed deposit guide or available on their website.
To proceed with the renewal of your current investment with Shriram Finance, please log in to our Customer portal.
What about a Corporate Fixed Deposit?
If you have invested in a corporate FD, for instance, in our Shriram Finance FD, we offer auto-renewal and auto-refund options to our depositors. Even if you don’t know how to withdraw a fixed deposit, we will help you. At the time of applying for our FD, the depositor can choose any of these options. If you have opted for auto-renewal, you can either renew the principal component only at maturity or renew both the principal and the interest component. Our team will renew based on the option you selected at the time of the online application. You should, however, know how to renew a fixed deposit.
If you choose the auto-refund option, then the total amount (principal + interest) will be credited to your account at maturity. We will do it for you based on your inputs at the time of FD account opening. You will not have to visit our office to collect your money. May companies give proper guidance and instructions on their fixed deposit for beginners initiative.
Also, we will call to inform you in advance that your maturity is about to get due as a part of our fixed deposit online renewal procedure. It is a rare possibility since we make every possible effort to apprise you of your deposit getting matured. The company will transfer the total amount at maturity to your bank account via NEFT or RTGS if the deposit is still unclaimed due to any reason. If the amount sent via NEFT/RTGS fails, we write a cheque against your name so that you get your money. It is all we had for you in this article, wherein we tried to simplify the process of fixed deposit for beginners.
We at Shriram Finance have many options of fixed deposits at lucrative interest rates and with flexible tenors suited to your financial goals. We offer an additional 0.50%* p.a. interest to senior citizens and retired people. We also have a premature withdrawal option after an initial lock-in period. You can read more about our best-fixed deposit plan in India here. Allow us to serve you!!
