Fixed Deposits are one of the most innovative and dynamic instruments that have evolved in the financial system ever since the inception of money. As they are based on the concept of interest and the time value of money, fixed deposits personify the essence of innovation and transformation, which have fueled the explosive growth of the financial markets over the past few centuries.
Fixed Deposits serve as a medium of saving and payment and are a significant variable in the national economy.
Types of Fixed Deposits
Bank Fixed Deposits
Time deposits, also known as bank fixed deposits are deposit schemes offered by banks where an amount is deposited for a fixed period, say 365 days, two years, or five years. Some term deposits of an extended period, i.e., five years fixed deposit, offer tax benefits on the initial investment. A term deposit could be cumulative or non-cumulative based on interest payment. If interest is paid periodically, say every month, half-yearly, or yearly, it would be termed a non-cumulative fixed deposit. In contrast, if interest is not paid but accumulated over the period for which a fixed deposit is created and paid on maturity, it is termed a cumulative fixed deposit.