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Fixed Deposit vs Certificate of Deposit: A Comprehensive Guide

May 01, 2025

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Fixed Deposits (FDs) and Certificates of Deposit (CDs) are two popular time-deposit investment options offering fixed returns. While both are low-risk instruments, they cater to different needs and investor profiles. This article delves deep into the nuances of FDs and CDs, helping you decide the right choice for your financial goals.

What is a Fixed Deposit (FD)?

A Fixed Deposit is a financial instrument provided by banks and financial institutions. For FDs, you need to deposit an amount, generally starting from 1,000, for a fixed tenure. It’s a one-time investment, wherein you deposit the amount and receive interest pay-outs either monthly, quarterly, half-yearly, annually or at maturity, based on the interest pay-out option selected by you.

The interest rate remains fixed throughout the tenure and is calculated based on the compound interest method. With banks like Ujjivan, you can enjoy higher returns, up to 8.25%* p.a. on your FD investment. The tenure generally ranges from 7 days to 10 years. In case of cash crunch, you can either opt for premature withdrawal, or can avail a loan or overdraft against FD.

FDs are a go-to choice for conservative investors seeking stable returns over short or long periods.

What is a Certificate of Deposit (CD)?

Certificates of Deposit or CD are time deposits issued by banks and financial institutions. CDs are usually issued in large denominations, starting from ₹1 lakh and in multiples thereafter. The maturity ranges from 7 days to 1 year for banks and 1 to 3 years for financial institutions.

CDs often offer higher rates than FDs but are influenced by market conditions and the issuing entity. CDs are transferable and can be traded in the secondary market. Unlike FDs, loans cannot be availed against CDs due to their transferable nature.

CDs are ideal for institutional investors or individuals with surplus funds seeking short-term, high-return options.

Key Differences Between Fixed Deposit and Certificate of Deposit

Feature	Fixed Deposit (FD)	Certificate of Deposit (CD)
Minimum Investment	Starts as low as ₹1,000	Starts at ₹1 lakh
Target Audience	Suitable for individuals	Commonly used by institutions
Tenure	7 days to 10 years	7 days to 3 years
Interest Rates	Moderate and fixed	Generally higher but market-linked
Liquidity	Premature withdrawal allowed (with penalty)	Transferable in the secondary market
Security	Deposits up to ₹5 lakh insured under DICGC per depositor per bank	Not insured
Loan/OD Facility	Available	Not eligible for loans
Risk	Low	Slightly higher due to market dependency

Which One Should You Choose?

The choice between FDs and CDs depends on your financial objectives:

FDs: Best for individuals looking for long-term investments, steady returns, and low risk. They also offer the added benefit of being used as collateral for loans.
CDs: Suited for entities or individuals with surplus funds who prefer short-term investments and can handle slightly higher risk for better returns.

Final Thoughts

Both Fixed Deposits and Certificates of Deposit are excellent investment options, but their suitability depends on your investment amount, tenure, and risk appetite. FDs provide stability and long-term growth, while CDs offer higher returns over a shorter period. Analyze your financial goals and choose the option that aligns with your needs.

Looking to grow your savings faster? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.

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FAQs

1. What is the primary difference between an FD and a CD?

FDs cater to retail investors with low entry requirements, while CDs are designed for larger investments, often preferred by institutions.

2. Can I withdraw my FD or CD before maturity?

FDs allow premature withdrawals with a penalty, whereas CDs are transferable and can be sold in the secondary market. Ujjivan Small Finance Bank does not charge any penalty fee for withdrawals made after 6 months from the time of deposit.

3. Are the returns from FDs and CDs taxable?

Yes, interest earned on both is taxable under the “Income from Other Sources” category.

4. Who can invest in Certificates of Deposit?

Institutions, corporates, and individuals with surplus funds can invest in CDs, provided they meet the minimum investment requirement of ₹1 lakh.

5. Do FDs or CDs offer better returns?

CDs generally offer higher returns than FDs, but the risk and investment requirements are also higher.

6. Are FDs and CDs insured?

FDs in banks are insured up to ₹5 lakh under the DICGC scheme. CDs do not have such insurance.

7. Can NRIs invest in FDs and CDs?

NRIs can invest in FDs through NRE or NRO accounts. CDs, however, have restrictions depending on issuing banks’ policies.

8. What is the minimum tenure for CDs?

The minimum tenure for CDs is 7 days, similar to FDs.

9. Can I use a CD as collateral for a loan?

No, CDs cannot be used as collateral due to their transferable nature.

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