what is a deposit account

The Ins and Outs of Fixed Deposit Accounts: How They Work

Fixed deposit

Fixed deposit accounts have become famous for people looking for a secure and reliable approach to growing their money. In this blog, we will learn the basics of a fixed deposit account, including what they are, how they function, and the benefits they offer. 

Let's first understand a deposit account before diving into fixed deposits.

What is a deposit account?

A deposit account is a bank account where money is deposited for safekeeping while earning a nominal interest over time. The primary purpose of deposit accounts is to provide people with a safe place to keep their money and earn a return on their deposits. 

What is a fixed deposit?

A fixed deposit is an investment option provided by banks and other financial institutions. It is also known as a term deposit. It works like a specialised account in which individuals designate a certain amount of money for a set time, known as tenure. During this time, the money accumulates interest at a specific rate.

Basics of fixed deposit accounts

A fixed deposit account, additionally called a time deposit or period deposit, is a deposit account offered by banks and financial institutions. In a set deposit account, the depositor invests a lump sum for a predetermined tenure, ranging from a few months to several years. During this time, the finances stay locked, and the depositor earns a set interest charge, typically higher than the regular savings account.

Read More: Demystifying Recurring Deposit Accounts (RD)

How fixed deposit accounts work?

When opening a fixed deposit account, the depositor has to choose an investment amount and the deposit duration. The interest charge is determined based on the deposit amount and the tenure selected. Once the deposit is made, the bank pays interest on the amount, which remains with the bank till the completion of the tenure.

Advantages of fixed deposit accounts

Fixed deposit accounts provide numerous benefits, making them an appealing funding choice:

1. Guaranteed returns

One of the primary advantages of a fixed deposit account is guaranteed returns. The interest rate remains constant during the tenure, supplying certainty to the investor.

2. Safety and security

Fixed deposit money owed is considered secure and stable funding as they're not subject to marketplace fluctuations. The depositor's cash is blanketed, making it an ideal alternative for individuals prioritising capital protection. 

3. Higher interest rates

Fixed deposit schemes provide better interest charges than regular financial savings accounts, making them an excellent option for those trying to grow their savings without risk.

4. Flexible tenure options

Fixed deposit accounts come with various tenure alternatives, permitting investors to pick the duration that aligns with their financial goals.

5. No market fluctuations

Unlike investments in the stock market or mutual funds, fixed deposit accounts are unaffected by market changes. Your returns are predetermined and not dependent on the performance of any financial product or market.

6. Additional interest for senior people

Many banks provide additional interest rates to seniors, making Fixed Deposit Accounts even more appealing to retirees or older investors.

7. Loan facilities

In times of emergency or financial necessity, you can use your Fixed Deposit Account as collateral to get a loan or a credit card, giving you rapid access to cash without breaking the deposit.

8. Predictable income stream

Fixed deposit accounts can provide a consistent source of passive income. The interest payment may be set to coincide with your financial requirements, giving a consistent revenue stream.

9. Tax advantages

Fixed Deposits of more than five years can provide tax benefits to depositors. This aspect can help save taxes on income.

10. Low minimum deposit requirement

Because most banks provide Fixed Deposit Accounts with a low minimum deposit requirement, it is accessible to depositors of every income group, even those with smaller sums to invest.

11. Simple application and minimal paperwork 

Opening a Fixed Deposit Account is a simple process with few documentation requirements. This makes it a go-to solution for those looking to grow their money.

How to open a fixed deposit account?

Opening a fixed deposit account is simple. Here are the steps to follow:

  • Visit the nearest bank or branch where you want to open a fixed deposit account.
  • Fill out the fixed deposit form with your details, the deposit amount, and the tenure you want to invest in.
  • Submit any required files, including proof of identification, proof of residence, and a passport-sized picture.
  • Deposit the chosen amount to create the fixed deposit account.
  • Receive a printed document from the bank specifying the deposit amount, tenure, and applicable interest rate.

Alternatively, you can open a fixed deposit account online by logging in to your net banking or mobile banking app. 

How to earn FD-like interest with a savings account?

If you don’t want to lock your money for a term, open a Kotak811 savings account online with the ActivMoney feature. It can help you earn FD-like interest of up to 7% p.a. on your savings accounts. When the account balance surpasses a particular threshold, the extra amount receives more excellent interest rates, providing additional advantages without requiring the money to be locked in a fixed deposit.

Meanwhile, those with low or no Credit score and income proof looking for a credit card can book a Fixed Deposit for as low as Rs.5,000 and get a Kotak811 Dream Different Credit Card. 


Fixed deposits are a dependable source for growing your money without risk. However, those hesitant to lock in their money for the long term can open Kotak811 savings account online with the ActivMoney feature. It provides FD-like interest of up to 7% p.a. on savings accounts.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.