Fixed Deposit (FD) Vs Certificate of Deposit 

When it comes to secure investment options, FD vs Certificate of Deposit is a common comparison for those seeking fixed income. Both options provide guaranteed returns with fixed interest rates, making them reliable choices for risk-averse investors. However, understanding the differences between these time deposits is essential to determine which aligns better with your financial goals.

What Is a Fixed Deposit?

A Fixed Deposit (FD) is a popular investment option where you can deposit a lump sum amount for a specific duration at a fixed interest rate. Banks, Non-Banking Financial Companies (NBFCs) and post offices offer various FD schemes. The interest rate stays constant throughout the tenure, ensuring assured returns. However, the rate varies based on the amount you invest, the duration and the institution you choose.

Stable Money helps you explore the best fixed deposit options that suit your financial goals and risk appetite.

If you are a senior citizen, you can benefit from higher interest rates on your FD investments. While many FD schemes allow early withdrawals, you have to pay a penalty if you withdraw before maturity. Certain FD schemes with a tenure of five years also provide tax deductions of up to ₹1,50,000 under Section 80C of the Income Tax Act, 1961. Moreover, you can use your FD as collateral to secure loans at lower interest rates. 

Here are some key features of a Fixed Deposit:

• Consistent Returns: FDs provide fixed, predictable returns, making them a trustworthy investment option.
• Loan Against FD: Several banks allow you to take a loan against your FD, offering flexibility and access to funds when required.
• Customisable Duration: Investors can select a tenure that suits their financial objectives.
• High Safety: FDs are regarded as a secure investment, especially when held with well-established banks.

What Is a Certificate of Deposit?

Certificates of Deposit (CDs) are money market instruments that you can invest in to earn a fixed return. Issued in a dematerialized form, they are held with depositories registered under the Securities and Exchange Board of India (SEBI) and regulated by the Reserve Bank of India (RBI).

CDs come with fixed investment amounts and tenures, making them a structured investment choice. The minimum amount you can invest is ₹5,00,000, and additional investments can only be made in multiples of ₹5,00,000. Its investment tenure usually ranges from seven days to one year. You cannot withdraw your funds before the maturity date. CDs are a popular choice among investors because they typically offer higher interest rates compared to other financial instruments.

Here are some important features of a Certificate of Deposit:

• Better Interest Rates: CDs typically offer higher interest rates compared to standard savings accounts, making up for their limited liquidity.
• Defined Maturity Period: CDs come with a fixed maturity period, which can range from a few months to several years, giving you a clear investment horizon.
• Low Risk: Since CDs are issued by banks, they are considered relatively safe, especially when offered by trusted financial institutions.
• Early Withdrawal Penalty: If you withdraw your funds before the maturity date, you may incur a penalty, ensuring the investment remains stable.

Key Differences Between FD vs Certificate of Deposit 

The following table shows a comparison of Certificate of Deposit vs FD in India:

FD vs Certificate of Deposit: Which Is the Right Investment for You?

When comparing FD vs Certificate of Deposit, your investment amount and tenure play a key role in deciding which option suits you best. It is essential to align your choice with your financial goals and the funds available. If you have a lump sum amount sitting idle in your savings account and aim to achieve a financial goal five years down the line, opting for an FD is a smart move.

On the other hand, if your financial goal is short-term and you have sufficient funds ready, a Certificate of Deposit could be the better choice. Make sure to review the early withdrawal terms of a CD scheme, especially if you might need quick access to funds in an emergency. You must keep in mind that these terms can vary across financial institutions, so choose accordingly.