Fixed deposits are a risk-free way to ensure savings grow in a sustained manner over a period of time. With interest rates higher than a normal savings account, fixed deposits are a wise way to invest funds. With a saving mentality as an average Indian, fixed deposits will be the first choice for any individual. Since fixed deposits are not linked to the market rates, they do not offer the same liability of lowering rates as with other investment options. In addition to that, banks normally offer a higher rate of interest for fixed deposits that savings or current accounts.

Fixed deposits in India

Almost every bank in India offers the option of opening a fixed deposit account with minimal documentation. With interest rates ranging from 5% to 9%, banks can easily be chosen as per the interest rates they offer and the extra facilities available on them. The minimum amount that is accepted by banks for fixed deposit accounts could be as low as Rs. 1000 and some banks offer no maximum cap for the amount in a fixed deposit. Additionally, banks also offer monthly payouts and withdrawals on fixed deposits. That serves as an alternative income source for the account holder. Going by the monthly payout options, the interest on the balance of the fixed deposit is paid at a discount, if chosen. Banks with the better rates as of now and with the monthly payout options are as follows -

• ICICI Bank - With a maximum interest rate of 8.0-8.5% and rate of interest compounded quarterly or monthly, some fixed deposits from ICICI have an option to allow monthly payouts of the interest payable, albeit at a discounted value. Fixed deposits with a payout option have simple interest calculated on the annual rates.
• Union Bank - With a maximum interest rate of 8.0-8.15%, Union Bank offers a rate of interest compounded half-yearly. The bank offers a monthly payout at a discounted rate. The fixed deposit scheme that allows the monthly payout option needs to be for a minimum tenure of 6 months and can be of a maximum period of 120 months. The payout of interest starts from the second month onwards after the deposit is initiated.
• Punjab National Bank - The rates offered by PNB maximise at 8.15%. Payouts of interest can be done quarterly or monthly, albeit discounted. The minimum amount of deposit can be Rs. 100 and the maximum would be Rs. 99.99 lakhs.
• Axis Bank - At a maximum cap of 8.2% interest calculated quarterly compounding, Axis Bank offers fixed deposit accounts for a minimum amount of Rs. 10,000. The lowest minimum multiple that is allowed over that is in denomination of Re. 1. There is no maximum limit for the deposit. The monthly interest payout fixed deposit will be at a discounted rate of the interest applicable for the fixed deposit.
• Bank of Baroda - There is a low deposit amount of Rs. 1000 for opening a fixed deposit account with the Bank of Baroda. Tenures range from 6 months to 10 years. The monthly payout of the interest will be at a discounted rate from the one applicable on the fixed deposit. The interest rate provided by Bank of Baroda is a maximum of 8.25%.
• YES Bank - The tenure of the fixed deposit at YES Bank starts from seven days and goes up to 10 years. The interest rate is 8.25% quarterly compounding and the interest payable on a monthly basis is at a discounted rate.
• Kotak Mahindra Bank - The maximum interest on fixed deposit accounts is 8.2% compounded monthly. Payouts can be made on a monthly basis at a discounted rate. The initial deposit required to open the fixed deposit account is Rs. 10,000. The deposit term can be as low as 7 days and as high as 10 years.

Interest rates offered by banks on fixed deposits are directly related to the tenure for which the deposit is intended for. Consequently, a five-year deposit will attract a higher interest rate than a one-year deposit. At times, some banks might reduce the maximum interest rate by a small fraction if the tenure exceeds 5-6 years. In addition to that, banks might offer special rates that are higher than the standard rates applicable. Senior citizens might be able to avail an interest rate that is 0.25-0.5% higher than the standard rates. Before choosing to open a fixed deposit account with any bank, it is advisable to note what are the premature closing rates, and of course, if an additional source of income is needed, whether monthly payout options are available or not.