Term Deposit VS Fixed Deposit a Detailed Comparision

Many people use the terms ‘term deposit’ and ‘fixed deposit’ interchangeably, assuming they refer to the same kind of bank deposit. However, while quite similar, there are some key differences between term deposits and fixed deposits; one of the major key differences is that term deposits often offer higher interest rates than FD interest rates

But, it is important to understand all the differences between term deposits and fixed deposits before you invest. This article explains the basics of term deposit vs fixed deposit, discussing their features.

What is a Term Deposit?

A term deposit is a type of deposit that allows you to deposit your money for a particular period, known as tenure or term. The tenure varies from a couple of months to a few years and has varying minimum deposit amount requirements. 

Key Features Of Term Deposits

  • You agree to lock your funds for a predetermined amount of time, known as the ‘term.’ Common terms are 6 months, 1 year, 2 years, etc.
  • In exchange for agreeing to lock up your money for the term, you get a guaranteed, fixed interest rate, which is usually higher than that of regular savings accounts.
  • You cannot withdraw the money before maturity without incurring penalties. These early withdrawal penalties usually result in the loss of some interest.
  • Term deposits are very low-risk investments that have the backing of deposit insurance. Your principal is guaranteed as long as you hold it until maturity.

Overall, term deposits appeal to extremely conservative investors who want no risk to their principal and are willing to sacrifice a lot of liquidity for slightly higher returns.

What is a Fixed Deposit?

Now that we know what a term deposit is, when discussing term deposit vs fixed deposit, let’s understand fixed deposit. While technically different financial products, the terms’ fixed deposit’ and ‘term deposit’ are very often used interchangeably because they work almost identically.

A fixed deposit is nearly the same as a term deposit – it is an agreement to deposit your money with the bank for a defined period and an interest rate.

Here are some key characteristics of fixed deposits in banks: 

  • You deposit money for a predefined duration with fixed and also interest rates. The tenure ranges from 7 days to 10 years.
  • The interest rate is much higher than regular savings accounts but a lot lower than debt funds and also stocks.
  • The interest can be paid monthly, quarterly, annually, or on maturity.
  • Premature withdrawals are usually not allowed. If allowed, there are heavy penalty charges which can nullify the interest you earn.
  • Fixed deposits are available to individuals, businesses, and trusts.
  • Deposit insurance covers the fixed deposits up to a limit per bank (Rs 5 lakhs in India per individual account holder).
  • After the FD maturity, you have the option to renew it for a specified period and interest rate.

Term Deposit vs Fixed Deposit: Some Major Differences

While term deposits and fixed deposits work almost identically, there are some subtle differences between term deposit vs fixed deposit to be aware of: 

  • In general, the duration of term deposits ranges from certain weeks to five years. At the same time, the tenure for fixed deposits ranges from days to 10 years.
  • Interest payment frequency may differ slightly – the term deposits often default to the annual interest, while most fixed deposits pay monthly, quarterly, or yearly interest. You can also consider getting the interest upon maturity.
  • Fixed deposits have limited flexibility, yet term deposits enjoy greater flexibility. 
  • Another major difference between term deposits and fixed deposits is that term deposits are suitable for short-term investors. However, long-term investors can benefit from a fixed deposit. 

So, in summary, term deposits and fixed deposits are very similar bank deposits with guarantees on principal and fixed returns over predefined periods up to a few years. They appeal to conservative investors who want zero risk and do not need constant liquidity. The main difference between the two products is the terminology used in the different geographic regions.

Which is Better for You: Term Deposit vs Fixed Deposit

Deciding between a term deposit and a fixed deposit isn’t really necessary since they work almost identically. However, here are some things to consider: 

  • Interest Rates: Compare interest rates as they can differ quite slightly between the banks offering these products. Online banks tend to offer much better rates globally.
  • Tenure Flexibility: Sisn’tanks may offer more choices in the duration than others. Choose tenure based on your timeline and also liquidity needs.
  • Features: Compare premature withdrawal penalties and the interest payout frequencies. Also, check if partial withdrawal is permissible.
  • Insurance Cover: In India, deposits are insured up to Rs 5 lakhs per bank by the DICGC. 

While term deposits and fixed deposits are very similar products, comparing the above differences of term deposits vs fixed deposits across a few banks can really help you find the best one for your needs. Ultimately, it depends on your timeline, required returns, and also risk appetite.

Why Choose Term Deposits?

Investors are increasingly opting for term deposits. Unlike standard savings or checking accounts, which allow withdrawals at any time, the depositor cannot access the funds in a term deposit until the end of the agreed term. The tenure ranges from several months to several years.

The higher interest rates on term deposits compensate for the lack of liquidity and flexibility. Additionally, term deposits are an extremely safe investment as they have the backing of the Deposit Insurance and Credit Guarantee Corporation (DICGC).

In summary, term deposits appeal to conservative, low-risk investors who want to earn a higher guaranteed return on their savings without needing frequent access to their capital. The fixed timeline and government-backed insurance make term deposits a secure way to invest money that isn’t necessary for daily transactions or expenses.


We hope that readers have a clear understanding of the differences between term deposits and fixed deposits. It is important to consider all the terms and conditions, check the best FD interest rates, and then proceed with the investment. Wint Wealth makes it easier to compare interest rates through its platform. So, don’t wait; visit the website, scroll through all the available options, and make a wise decision. Happy Investing!

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