Fixed Deposit vs Certificate of Deposit: A Comprehensive Guide

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

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.