Fixed Deposit is a saving option where an individual deposits a specific amount for a fixed tenure and earns interests depending on the tenure and the deposited amount. 

The tenor of an FD can be anywhere from 15 days to 10 years. You can choose to receive the interest monthly, quarterly, half yearly, annual or at the time of maturity. Although you invest for a fixed duration, you can withdraw the amount earlier than maturity with some penalty either in form of reduced interest rate or a charge as a percentage of invested amount. Investment made in FDs with duration of 5 years or more enjoys the Tax Benefits of Section 80C. The interest earned from FDs are taxable as per the slab rates.

Types of Fixed Deposits

Post office or Bank Fixed Deposits: The Fixed Deposit offered by post office is risk free as it is guaranteed by the Government of India. Bank FDs are also quite safe as banks are heavily regulated by the RBI, and Bank FDs are insured by DICGC. This insurance is available up to Rs 5 lakh per person per bank branch i.e., if you have 5 FDs of Rs 5 lakh in different branches of the same bank or in different banks, the entire amount of 25 lakh would be insured but if you have 5 FDs of 5 lakh in the same bank branch then you would be insured only up to Rs 500000.

Fixed Deposits of Co-operative Bank: They offer higher rate of return on the deposits by 0.5% to 1% than commercial banks but also possesses higher Risk than commercial banks. Before investing in these small banks, one has to analyse their financial strength and credibility. There have been several scams in the cooperative bank sectors.

Company Fixed Deposits: As the name suggests, company Fixed deposits are the FDs issued by companies. They are distinct from the FDs offered by post office and banks. Company FDs are known to offer higher interest rates compare to post office and bank FDs and usually comes with the locking period of 3 to 6 months. Financial institutions and Non-Banking Finance companies offers such FDs. These deposits are unsecured, i.e., if company defaults, troublesome for the investors to recover their capital, thus making them a risky investment option.

Company FDs can be an interesting investment option if you know how to select the right FD. Some points that investors should keep in mind before opting out for company FDs.

1. The deposits should be spread over a large no of companies engaged in different industries. Do not put more than 10% of your total investment in one company.
2. Term of investment should be 1 to 3 years depending upon rate of interest.
3. The performance of companies should be reviewed periodically by checking their share prices, annual reports and other developments reported in newspapers. This will help you decide whether to continue or reshuffle the deposit.

It is always advisable to consult a Qualified Financial Planner before investing in company deposits.