What Is a Fixed Deposit Account? [Banking Basics]

In this article, weโ€™re answering โ€œwhat is a fixed deposit account?โ€

This article is part of our free series on how to open a bank account, which covers bank accounts for all possible scenarios, including when an account has been deemed dormant.

Feel free to use the table of contents to jump ahead to the sections most relevant to you.

Table of Contents

  1. What Is a Fixed Deposit Account?
  2. Benefits of Fixed Deposit Accounts
  3. Who Is Eligible to Open a Fixed Deposit Account?
  4. How Do I Open Fixed Deposit Accounts?
  5. Frequently Asked Questions
  6. Ready to Explore Your Options?

What Is a Fixed Deposit Account?

A fixed deposit account (FD) is an account with a fixed interest rate applied by the financial institution where the account is held. In exchange, bank customers commit to maintaining the account balance with the bank for a fixed period of time. In doing so, the bank is able to better manage its balance sheet and the customer is able to generate a consistent return on their deposit.

Different countries call fixed deposit accounts by different names. However, the same general principles apply: The bank offers a fixed rate of return for a set period of time and the customer commits to maintaining a balance for that timeframe in exchange for the fixed return.

That said, each bank has specific terms and conditions that apply to fixed deposits. Of particular importance is what happens when a customer withdraws their funds prematurely. With this in mind, if there is any chance that your funds will be needed before the end of the term, itโ€™s important to know what penalties might be applied to this.

Benefits of Fixed Deposit Accounts

Benefits of fixed deposit accounts vary between jurisdictions. However, in most cases the key benefits people look for in a fixed deposit account include safety, security, and consistent returns. We will take a close look at a few key benefits of fixed deposit accounts below.

Interest Rate Benefits

Interest rate benefits are the most common reason why an individual decides to open a fixed deposit account. That said, high interest is not the only catalyst for opening an account. Instead, the security and stability of the interest rates benefits offered by a fixed deposit account are also very attractive.

Deposit Rates

The specific deposit rates offered by banks will vary widely. In fact, this is not only true across borders but also within a single market. For example, in the United States, certain banks are still offering below 0.5% interest rates while other financial institutions are offering above 5% on fixed deposits (known as certificates of deposit in the US).

Tax Benefits

Tax benefits linked to fixed deposit accounts are generally offered on tax-sheltered accounts. In most cases, available tax-sheltered accounts range from retirement and education savings accounts to tax-free savings accounts. That said, the specific tax-sheltered account options that exist in each jurisdiction vary widely, so itโ€™s important to carefully review your local options before deciding which is best for you.

Assured Returns

Assured returns can refer to the fixed rate of return that is applied to a fixed deposit rate. However, it can also relate to returns on other bank savings or insurance products. Importantly, outside of low-risk low-interest savings accounts, very few bank products ever offer assured returns.

Loans Against Fixed Deposit

Loans against fixed deposit accounts are possible in certain circumstances. For example, in India, it is possible to take out a loan against an FD, where the deposit is pledged as security against the loan. This is also true in other jurisdictions and can take many other forms, including everything from a portfolio of securities to fixed assets.

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Who Is Eligible to Open Fixed Deposit (FD) Accounts?

Eligibility to open a fixed deposit (FD) account is based on the jurisdiction where the account is opened. However, in most places, this means that local residents 18 years old and older are eligible. That said, in many countries, non-resident foreigners are also able to open accounts, if they know which specific banks to apply to.

Can I Deposit Money Monthly Into an FD Account?

Whether you can deposit money monthly into an FD account ultimately depends on the bank and the type of account you have opened. However, in most cases, fixed deposit accounts are based on an initial lump sum deposit that then accrues interest for a set period of time. That said, other banks do offer accounts with similar interest that allow for consistent monthly deposits, such as a regular saver account.

Can I Withdraw Money From Fixed Deposit Accounts?

Yes, you can withdraw money from a fixed deposit account. However, itโ€™s important to note that when you withdraw money early, banks may charge a penalty or not pay the interest earned within the current period. Additionally, certain banks may also impose rules that do not allow account holders to make partial withdrawals. Instead, account holders are forced to choose between withdrawing all of their funds or leaving all of their funds in the account.

What Is the Minimum Amount for a Fixed Deposit?

The minimum amount for a fixed deposit account will depend on the specific bank that you are looking to open with and even the specific country where you are looking to open accounts. That said, most depositors can expect to deposit between 5,000 and 10,000 in order to establish a fixed deposit account with most banks.

Fixed Deposits vs Mutual Funds

The main difference between fixed deposits and mutual funds is that fixed deposits are a guaranteed return on an agreed deposit for an agreed-upon period of time while mutual funds fluctuate in value with the broader market.

How Do I Open Fixed Deposit Accounts?

To open a fixed deposit account, you can visit your current financial institution and ask to apply for a fixed deposit. Of course, depending on the bank, you may be able to complete the entire account opening process online. Alternatively, if you are looking to open an account with a new bank, you will need to contact the bank of your choosing and establish a new relationship.

That said, regardless of whether you want to open a new account with an existing bank relationship or establish a new relationship, most banks will require you to start the entire account opening process over again.

Hereโ€™s a closer look at what specific requirements you will need to meet to open a fixed deposit account.

Requirements for Opening Fixed Deposit (FD) Accounts

  • Government-issued identification
  • Proof of local address
  • Tax identification number
  • Tax identification card (depending on the country)
  • Completed account opening documents
  • Qualifying initial deposit

Frequently Asked Questions

Below are three of the most common questions that we receive from people looking into what a fixed deposit account is. If you have further questions you would like answered, donโ€™t hesitate to get in touch with us directly.

What Is the Minimum Age for Opening an FD?

The minimum age for opening an FD account is the same age that banks permit individuals to open other accounts. In most cases, this is the age of the majority, which means between 16 and 18. However, certain banks do offer accounts for children. A child account is almost always a savings account and they generally offer higher interest rates. With this in mind, you may want to confirm with your bank if a fixed deposit option is available for minors.

What Is the Minimum Amount Required to Open a Fixed Deposit?

The minimum amount required to open a fixed deposit account depends on the bank. For example, in certain jurisdictions, the deposit requirement might be 5,000 to 10,000 while in other countries, there may be no set minimum requirement for account holders.

Can I Link My Savings Account With FD?

Yes, you can link a savings account with an FD account if you are looking to withdraw your funds. However, if you are withdrawing before the term of your fixed deposit, this will be considered as a premature withdrawal. Depending on the terms of your account, this can result in the interest earned not being applied. Alternatively, you may need to pay a penalty for an early withdrawal.

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GlobalBanks Team
GlobalBanks Team

The GlobalBanks editorial team comprises a group of subject-matter experts from across the banking world, including former bankers, analysts, investors, and entrepreneurs. All have in-depth knowledge and experience in various aspects of international banking. In particular, they have expertise in banking for foreigners, non-residents, and both foreign and offshore companies.

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