Key Difference Between Term Deposit and Fixed Deposit

Quick Summary:

• A Term Deposit is the Category, a Fixed Deposit is a Type: Think of "Term Deposit" as an umbrella term for any investment locked for a fixed period. The most popular type of term deposit is a Fixed Deposit (FD).
• Lump Sum vs. Regular Savings: The main practical difference lies in how you invest. A Fixed Deposit (FD) is for investing a single, one-time lump sum. Other term deposits, like a Recurring Deposit (RD), are for saving a fixed amount every month.
• Fixed Returns: All term deposits offer safe, guaranteed returns at a fixed interest rate. However, your money is locked in for the chosen tenure, and withdrawing it early usually incurs a premature withdrawal charge.
• Choose Based on Your Income Flow: The right choice depends on your financial goals. If you have a lump sum to invest (e.g., a bonus), an FD is ideal. If you want to build savings with regular monthly investments, an RD is the better option.

Key Difference Between Term Deposit and Fixed Deposit

For decades, savers across India have confidently invested in Fixed Deposits to secure their financial future. Simultaneously, financial institutions have marketed a broader category of products known as Term Deposits. The overlap in terminology has led to a silent question in the minds of many investors: are these two paths the same, or do they lead to a different destination?

Understanding the difference between a term deposit and a fixed deposit is important to make the right financial decisions. This article not only explains what each means but also highlights their key differences and helps you to decide on an option that best suits your needs.

What is a Term Deposit?

Think of a Term Deposit as an umbrella category for different types of savings plans. When you invest in a term deposit, you put your money away for a fixed period (called the tenure) at an interest rate that is decided beforehand. This interest rate doesn't change, which makes it a very safe and stable investment.

So, a term deposit is not a single product but a family of products. The most common examples include:

• Fixed Deposits (FDs): Where you invest a single amount at once.
• Recurring Deposits (RDs): Where you invest a fixed amount every month.

What is a Fixed Deposit (FD)?

A Fixed Deposit (FD) is a specific type of term deposit. With an FD, you invest a single amount of money (known as a lump sum) for a fixed period, which can range from 7 days to 10 years. The interest rate is locked in for the entire tenure.

FDs are a favorite for people who want to protect their initial investment (their capital) while earning a steady return. They generally offer higher interest rates than a regular savings account, making your money work harder for you.

Term Deposit vs Fixed Deposit – Key Differences

A simple comparison table to understand the differences and similarities between term deposit vs fixed deposit is represented below:

Understanding the differences and similarities between term deposits and fixed deposits helps you choose the right plan based on your needs.

A Quick Example

To see how this works, let's look at the goals of two friends, Priya and Rohan.

• Priya's Goal (A Car Down Payment): Priya gets a one-time work bonus of ₹1,00,000. She wants to use this for a car down payment in two years. A Fixed Deposit is tailor-made for her situation. By investing the ₹1,00,000 lump sum in a 2-year FD, she locks in a favorable interest rate and can confidently plan her purchase, knowing exactly what her funds will grow to.
• Rohan's Goal (A Gadget Fund): Rohan wants to save for a new camera but prefers saving from his monthly salary. He decides to set aside ₹6,000 every month. A Recurring Deposit (RD), the other type of term deposit, is his perfect match. It allows him to build his savings with disciplined, regular payments, reaching his goal systematically.

This shows that while both are saving for a fixed term, the method of investment—lump sum vs. regular payments—is the key differentiator that determines whether an FD or an RD is the right choice.

Suggested Read: FD vs RD: Which One Should You Choose?

Benefits of Fixed Deposits

There are several benefits of term deposit plans, like fixed deposits, especially when you invest with a trusted institution such as Mahindra Finance. Some of the key f include:

Stable Returns

One of the biggest advantages of fixed deposits is that they give you a fixed return on your investment. As compared to other investment options that are volatile and fluctuate more on the basis of market conditions, this is a relatively safer option. You know exactly what you will receive at the end of the tenure.

Flexible Tenure Options

This is another notable benefit of a fixed deposit. It allows you to plan your financial goals in a way that best matches your needs. A wide variety of tenure options ranging from a few days to many years is available, allowing you to plan based on your needs and circumstances. 

Tax Saver

Under Section 80C of the Income Tax Act, there are special types of fixed deposits offering tax savings. Investors can claim a deduction of up to 1.5 lakhs in a financial year. With a locked-in period of 5 years, these FDs provide a high interest rate as compared to other savings accounts. These types of FDs are generally offered by banks.

Beneficial for Senior Citizens

Fixed deposits can be beneficial for senior citizens as they offer additional interest rates for senior citizens. This not only allows them to retire with confidence but also ensures that they can enjoy a good standard of living.

Easy to manage

Fixed deposit accounts are easy to start and manage. With just a few simple steps and support from the Mahindra Finance team, navigating the various processes becomes easy and comfortable.

While the benefits of a fixed deposit are many, you must also keep in mind the following considerations before going for a FD:

• Patience is Key (Liquidity): Your money is committed for the full term. Accessing it early is possible, but usually comes with charges that reduce your earnings.
• The Fixed-Rate Reality: A locked-in rate is great in a falling market, but if interest rates rise, you won't be able to take advantage of them with your existing FD.
• The Inflation Factor: Always weigh your FD interest rate against the current rate of inflation. To truly grow your wealth, your returns should ideally outpace inflation.

At Mahindra Finance, we offer fixed deposits that come with competitive interest rates and strong safety ratings to our customers, which makes them a smart and dependable choice.

How to Choose the Right Deposit Type for You

Choosing the right deposit depends on several factors. These include financial goals, income flow, and risk tolerance. If you want to invest a lump sum for a fixed time and earn higher returns, a fixed deposit is ideal. If you are someone looking for regular investments, a recurring deposit (another term deposit) may be a better option for you. But before making a final decision, always ask yourself:

• Do I have a lump sum to invest right now? If yes, an FD is ideal.
• Do I want to save a smaller amount regularly? If yes, an RD might be better.
• How long can I keep my money invested? Match the tenure to your financial goal.
• Am I looking to save on taxes? A 5-year tax-saving FD is a great option.

If you're looking for stability, low risk, and flexible tenure, fixed deposits from Mahindra Finance can be a great choice.

Why Mahindra Finance is the Right Choice for Your Deposit Needs

At Mahindra Finance, we have successfully built a reputation for trust and reliability in the financial services sector. Here's why we should be your preferred destination for fixed and term deposits:

Attractive Interest Rates

When you invest with us at Mahindra Finance, you can enjoy competitive interest rates of up to *7.00% p.a., ensuring your savings grow faster over time. When you invest with us at Mahindra Finance, you enjoy high interest rates. Which means your savings can grow faster over the period of investment. And that’s a smart way to make your money work harder for you.

Higher Interest for Senior Citizens

Fixed deposits are particularly beneficial for senior citizens, who are offered additional interest. At Mahindra Finance, we offer an additional interest rate of up to *0.25% p.a. on their deposits for senior citizens, helping them secure their retirement with better returns.

Flexible Tenure Options

Not everyone has the same financial goals, and at Mahindra Finance, we understand this. With us you can choose how long you want to invest your money. The money you deposit is invested for a selected period, which can range from 12 to 60 months according to your choice. The interest rate for which is locked in at the time of investment, providing you with predictable and stable returns.

Loan Against Deposit Facility Life is unpredictable, and the need for funds may arise unexpectedly. During such circumstances Mahindra Finance offers a loan facility against your FD, allowing you to borrow up to 75% of your deposit value after a minimum of three months. This feature provides liquidity without having to break your investment.

Easy Application Process

Opening a fixed deposit at Mahindra Finance is super convenient. You can apply online via our Mahindra Finance Customer App from the comfort of your home or visit a nearby branch to get started. The paperwork for FD is minimal, and the process is quick and hassle-free.

High Safety Ratings

One of the biggest concerns with investing is safety, and Mahindra Finance scores high here. Mahindra Finance's Fixed Deposits have the highest safety ratings of "CRISIL AAA/Stable" and "IND AAA/Stable", which signify a powerful ability to service financial obligations and the lowest credit risk.

Excellent Customer Support

Good service makes a big difference, and Mahindra Finance truly delivers on that. Whether you need help understanding a product or have a query about your deposit, their team is always ready to assist. You'll feel supported every step of the way.

Suggested Read: Fixed Deposit Vs Savings Account: Where Should You Invest?

FAQs on Term Deposit vs Fixed Deposit

Can I withdraw my money before maturity from a fixed deposit?

Yes, most FDs allow premature withdrawal, but pre-withdrawal charges may be applied. Mahindra Finance also offers this feature, ensuring liquidity in case of emergencies.

What is the difference between a short-term deposit and a long-term fixed deposit?

A short-term deposit typically has a tenure of less than 1 year, while a long-term FD can go up to 10 years. Longer tenures usually offer higher interest rates when compared to short term deposits.

Is Fixed Deposit a Type of Term Deposit?

Yes, an FD is a specific kind of term deposit where a lump sum is invested for a fixed tenure at a fixed rate of interest. FD falls under the umbrella of term deposits such as Recurring Deposits, Tax Saving Deposits, etc.

Are term deposits and fixed deposits insured?

Yes, most deposits with banks are insured up to a certain limit by agencies like DICGC. On the other hand, for NBFCs like Mahindra Finance, FDs are backed by strong ratings from credit rating agencies, ensuring investor safety.

What are the benefits of a term deposit?

Benefits of term deposit plans include stable returns, fixed interest, low risk, and multiple options such as FDs, RDs, and tax-saving deposits. They suit both short-term and long-term goals.

Are FD deposits taxable?

The interest earned on FDs is taxable. Tax Deducted at Source (TDS) is applicable if the total interest income in a financial year exceeds the threshold of ₹10,000 at Mahindra Finance as per NBFC regulations.

How do I choose the right tenure for my term deposit?

Choose based on your financial goals. For short-term goals, opt for a 12-month period. For long-term wealth building, 3–5 years or more is suitable. Mahindra Finance offers flexible tenure options to match your specific needs.