What is Term Deposit?

Term Deposits are one of the most successful financial investment choices for people that are searching for a stable and safe return on their investments. In Term Deposits, the sum of cash is put for a fixed maturity and therefore the investor isn't allowed to withdraw this total until the end of the maturity period. 

What is a Term Deposit? 

A term deposit is a fixed-term investment that allows the deposit of cash into an account at a financial institution. Term deposit investments typically carry short-run maturities starting from one month to a couple of years and can have variable levels of needed minimum deposits

Define deposit

A deposit is defined as a transaction that involves a transfer of one thing to another party for responsibility. Within the world of finance, a deposit could check with a total of cash unbroken or placed in a bank account, generally to realize interest.

Bank deposit interest rates

The bank deposit interest rate is paid by monetary institutions to deposit cardholders. Deposit accounts consist of certificates of deposit (CD), savings accounts, and autonomous deposit retirement accounts.

Deposit

  • Deposit refers to transactions that involve a transfer of one thing to a different party for safekeeping. Within the world of finance, a deposit might discuss with a total of cash kept or placed in a very bank account, usually to achieve interest. It additionally might discuss some of the funds that are used as collateral or security for the delivery of a decent.
  • Investors should perceive once buying a term deposit that they'll withdraw their funds solely when the term ends. In some cases, the account holder might permit the investor early termination—or withdrawal—if they provide several days' notification. Also, there'll be a penalty assessed for early termination. 

Bank Deposit

  • Bank deposits accommodate cash placed into banking institutions for keeping. These deposits are created to deposit accounts like savings accounts, checking accounts, and market accounts
  • A fixed deposit is an investment possibility provided by banks or non-banking financial companies to deposit cash and earn a particular rate of interest.
  • The advantage of depositing cash in a very fixed-time deposit account is that it'll offer you a better rate of come than a standard savings account.
  • The maturity term for an FD account ranges from seven days to 10 years. A short-term fixed deposit includes a maturity term from seven days to most of twelve months. Fixed deposit interest rates vary from bank to bank and this can fluctuate and will be additionally revised.

Fixed Interest Deposit

  • A fixed deposit (FD) may be a money instrument provided by banks or NBFCs that provides investors a better rate of interest than a daily savings account, till the given date. it's going to or might not need the creation of a separate account.

Fixed Deposit Rates of Interest 

  • Fixed deposit accounts are ideal for investors who are averse to taking risks. Fixed Deposit Rates of Interest are accumulated on the deposit fixed amount for a certain period.
  • The charge per unit for deposits but Rs.2 large integer varies from 3.00% p.a. (for deposits but one year) to nine.54% p.a. (for deposits of up to ten years).
  •  This depends on the kind of financial institution still (public sector, non-public sector, or tiny finance banks).
  • The tenure will vary from seven days to ten years. Senior voters area unit offered higher interest rates. This is often typically within the vary of 0.25% to 0.65% over the present rates.
  • A fixed deposit is an investment possibility that enables you to earn interest on the number invested/deposited. Once you invest in an FD, the number you deposit is endowed for the amount of the investment.
  • At the top of the FD's tenure, you'll withdraw your principal still because of the interest earned on that.

Bank interest rates fixed deposit and  fixed deposit high-interest rate bank

Banks that are offering high-interest rate fixed deposits are given below

Name of Bank        For General voters (p.a.)        For Senior voters (p.a.)
IDFC First l Bank         6.25%                                        6.75%
Union Bank of India     5.40%                                      5.90%
IDBI Bank                    5.60%                                       5.35%
Canara Bank                5.75%                                       6.25%

Bank Term

In Term Deposits, the add of cash is kept for a hard and fast maturity and therefore the investor isn't allowed to withdraw this sum until the top of the maturity amount. That's why they're known as Term Deposits as a result they're well-kept to a specific term.

High-interest rate fixed deposit

  • Opening a fixed deposit is every one of the various ways in which to line aside finances for a period or for achieving your goals. IDFC First  Bank’s FD has several features and edges to assist you to grow your earnings. Once you open an account with us, you instantly gain access to advantages like high returns, up to 6.25% charge per unit, and far more

PostOffice fixed deposit interest rates.

  • Fixed Deposit is the safest investment possibility in India, offered by banks, NBFC, and post office, money deposited in the post office is named as Post office term deposit, and post workplace s fixed Deposit interest rates, offer 5.50 - 6.70% p.a. for tenures ranging from one year to five years.
  • The charge per unit on Post office Tax Saving FD is 6.70% p.a. for the overall public. These FD schemes supply the best style of capital protection and income certainty for the depositors as these are backed by the sovereign guarantee through the Union Ministry of Finance. Rather like different tiny savings schemes, these FD schemes are operated by the National Savings Institute, which works beneath the Department of Economic Affairs, Union Ministry of Finance. As a result, Post office fixed Deposits (PO FD) also is referred to as National Savings CD.

Post office fixed deposit interest rates

In our country, the Post office fixed deposit interest rate is 6.70% for a 5-year tenure time/ fixed deposit. Post office term deposit interest rate ranges from 5.50 - 6.70% p.a. for tenures varies from one year to five years. The interest rate on Post office Tax Saving FD is 6.70% p.a. for the overall public.

How a Bank Uses a Term Deposit 

  • Suppose a customer places cash in a term deposit, and the bank will invest the cash in an alternative monetary product that pays a better rate of return (RoR) than what the bank is paying the client for the utilization of their funds. The bank may lend the cash out to its alternative purchasers, thereby receiving a better rate of interest from the borrowers as compared to what the bank is paying in interest for the term deposit. 
  •  For example, an investor might provide a two percent rate of interest for term deposits with a 2 years maturity. The funds deposited are then structured as loans to borrowers who are charged 7% in interest on those notes. This distinction in rates means the bank makes a net a total five percent return.
  • The spread between the rate the bank pays its customers for deposits and therefore the rate it charges from borrowers is named net interest margin. net interest margin may be a profit assessment for banks. 

 Types of Term Deposit 
 
Cumulative and Non-Cumulative term deposits: 

  • A cumulative term deposit provides a chance for investors who don’t would like regular financial income from the deposit. Thus, the interest attained is reinvested into the deposit and paid out as payment at the end of the tenor. A non-cumulative term deposit is for investors who are searching for a daily interest payout. With a non-cumulative term deposit, the interest is credited within the investor’s account at regular intervals – monthly, quarterly, or yearly. 

 Sweep-in facility term deposit: 

  • Sweep-in may be a feature that banks or financial institutions give wherever the individual will set a higher limit on their bank account. Any amount more than that limit is converted into a term deposit. If the bank account faces a deficit then the funds are withdrawn from the term deposit with a loss of interest solely on the funds sweptwing in. Sweep-in term deposits typically offer better interest rates. 

 Short term and long term deposits: 

  • These term deposits are classified as supported by the holding amount of the investment. a brief-term deposit contains a lock-in period starting from one to twelve months. Short-term deposits are ideal for investors trying to find fast returns. long-run deposits have a lock-in amount starting from one to ten years. These deposits offer a better rate of interest than short-term deposits. 

Short term investment

  • Short term investments may be described as temporary investments or marketable securities, which may be simply regenerated into money, typically within five years. short-term investments are extremely quick assets that are specifically designed to produce a secure and temporary place to park excess money.

 Senior Citizen term deposits: 

  • A person over the age of sixty years is taken into account as a senior citizen. Most banks or financial institutions offer a better rate of interest on term deposits for senior people. Seniors also are eligible for tax-saving term deposits at some banks. 

 Special deposit schemes for children: 

  • There is some special deposit scheme aimed at the welfare of kids. ‘Sukanya Samriddhi Account’ was launched by the govt. aims at up the monetary stability of lady children higher than the age of ten years. Different banks have different schemes focussed on the financial welfare of kids e.g., ‘Sishu Mangal’ deposit scheme by Allahabad Bank, Balika Shiksha scheme by Punjab full-service bank, etc. 

 Post office Time Deposit: 

  • Post offices also offer certain monetary services. One such service is the Post office Term Deposit. It will either be opened as a personal or joint account. One will transfer their post office term deposit accounts from one post office to a different or own multiple accounts within the same post office. The minimum limit for the deposit is Rs.200 and therefore the current rate of interest is 8%. for five years. Any deposit for a tenor longer than five years is eligible for the tax edges prescribed beneath Section 80C of the tax Act, 1961. 

 Tax-saver term deposits:

  • Tax-saver deposits are eligible for a tax write-off of up to Rs 1.5 lakh beneath Section 80C of the tax Act. These tax saver term deposits have a lock-in amount of five years and any financial gain higher than Rs 40,000 is taxable. the standard interest rates vary between five.5%-7.75%. 

 Pros 

  • Term deposits provide a fixed rate of interest over the lifetime of the investment. 
  • Term deposits are riskless, safe investments since they are either backed by the Federal Deposit Insurance Corporation.
  • Various maturities permit investors to stagger end-dates to form an investment ladder. 
  • Term deposits have the least deposit amount. 
  • Term deposits pay better interest for larger opening deposit amounts. 

Cons 

  • Interest rates paid on term deposits are usually lower or less enticing than most fixed-rate investments. 
  • Without penalty, term deposits cannot be withdrawn early or the interest can lose all of the earned. 
  • Interest rates do not maintain with rising inflation. 
  •  Interest rate risk exists if investors are bolted in a low-rate term deposit whereas overall interest rates are rising. 

Conclusion

The interest rates being offered by the bank will modify anytime for a brand-new Certificate of deposit and may be different looking at the state in which the branch is found.

Customers will deposit the payment amount and therefore the payout is obtained once the maturity amount or on monthly basis.

FAQs

1. What are the 2 kinds of Term Deposits?

The two terms of term deposits are recurring deposits and fixed deposits.

2. What are the main characteristics of a term deposit?

       Features of Term Deposits

  • Fixed-rate of interest: the speed of interest for term deposits is fixed and isn't subject to fluctuations within the market.
  • Safety of investment: Since interest rates of the term deposit aren't affected by the changes within the economy, it's one of the safest investment choices accessible.

3. Is a term deposit higher than a savings account?

A high-interest bank account may be a bank account designed to help your savings grow quicker. Generally, it offers a better rate of interest compared to different transaction accounts. Whereas a term deposit may be a savings product wherever your cash is invested for a set term at a fixed interest rate.