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Fixed Deposit Account

Introduction

A Fixed Deposit (FD) Account is one of the most popular investment-cum-deposit options offered by banks. It is preferred by risk-averse customers who want assured returns over a fixed period. FD-related questions are common in banking exams and are usually concept-based and comparison-oriented.

Pattern: Fixed Deposit Account

Pattern

A fixed deposit account allows customers to deposit a lump-sum amount for a fixed tenure at a predetermined interest rate, with limited liquidity.

Step-by-Step Example

Question

Which type of bank account involves depositing a lump-sum amount for a fixed period at a fixed rate of interest?

  • A. Savings Account
  • B. Current Account
  • C. Fixed Deposit Account
  • D. Recurring Deposit Account

Solution

  1. Step 1: Identify the deposit pattern.

    The question mentions a lump-sum deposit.

  2. Step 2: Identify the tenure feature.

    The money is kept for a fixed period.

  3. Step 3: Check the interest certainty.

    The interest rate is fixed in advance.

  4. Final Answer:

    Fixed Deposit Account → Option C

  5. Quick Check:

    Lump sum + fixed tenure + fixed interest = FD Account ✅

Quick Variations

1. FD can be opened for tenures ranging from a few days to several years.

2. Premature withdrawal is allowed but may attract a penalty.

3. Senior citizens usually get a higher interest rate on FDs.

Trick to Always Use

  • Step 1 → Lump-sum deposit → Think FD
  • Step 2 → Fixed period + assured return → Eliminate Savings & RD

Summary

Summary

  • Fixed Deposit involves a one-time lump-sum deposit.
  • Money is locked for a fixed tenure decided at the time of opening.
  • Interest rate remains fixed and known in advance.
  • Premature withdrawal is possible but may involve penalties.

Example to remember:
Lump sum + Fixed time + Assured interest = Fixed Deposit

Practice

(1/5)
1. Which bank account is most suitable for a person who wants guaranteed returns with no exposure to market risk?
easy
A. Fixed Deposit Account
B. Savings Account
C. Current Account
D. Recurring Deposit Account

Solution

  1. Step 1: Identify the risk preference.

    The question asks for guaranteed returns without market risk.

  2. Step 2: Match with suitable deposit type.

    Fixed deposits offer assured returns at a fixed interest rate.

  3. Final Answer:

    Fixed Deposit Account → Option A

  4. Quick Check:

    Assured return + no market risk = FD Account ✅
Hint: Guaranteed return always points to FD.
Common Mistakes: Confusing savings account interest with guaranteed returns.
2. In which type of account is the interest rate decided at the time of deposit and remains unchanged throughout the tenure?
easy
A. Savings Account
B. Fixed Deposit Account
C. Current Account
D. Cash Credit Account

Solution

  1. Step 1: Identify interest behaviour.

    The question mentions a rate fixed in advance.

  2. Step 2: Match with correct account.

    FD interest is fixed at the time of opening.

  3. Final Answer:

    Fixed Deposit Account → Option B

  4. Quick Check:

    Fixed rate for full tenure = FD Account ✅
Hint: Interest fixed from day one = FD.
Common Mistakes: Assuming savings account interest is fixed.
3. Which of the following statements is correct regarding Fixed Deposit accounts?
easy
A. Money can be withdrawn anytime without penalty
B. Interest rate changes daily
C. Funds are locked for a fixed tenure
D. Deposits must be made every month

Solution

  1. Step 1: Recall the basic nature of FD.

    FD involves keeping money for a fixed period.

  2. Step 2: Eliminate incorrect features.

    Monthly deposits relate to RD, not FD.

  3. Final Answer:

    Funds are locked for a fixed tenure → Option C

  4. Quick Check:

    Fixed period lock-in = FD Account ✅
Hint: Fixed tenure is the core of FD.
Common Mistakes: Mixing RD features with FD.
4. What usually happens if a fixed deposit is withdrawn before its maturity date?
medium
A. Full interest is paid without any condition
B. No amount is returned
C. Interest rate increases
D. Penalty may be charged by the bank

Solution

  1. Step 1: Identify the situation.

    The question refers to premature withdrawal.

  2. Step 2: Recall bank policy.

    Banks usually allow early withdrawal with a penalty.

  3. Final Answer:

    Penalty may be charged by the bank → Option D

  4. Quick Check:

    Early break of FD = penalty applicable ✅
Hint: Premature FD withdrawal usually means penalty.
Common Mistakes: Assuming no penalty applies to FD withdrawal.
5. Which customer category generally receives a higher interest rate on fixed deposits?
medium
A. Senior citizens
B. Students
C. Business firms
D. Minors

Solution

  1. Step 1: Recall special FD benefits.

    Banks offer preferential rates to certain groups.

  2. Step 2: Identify the beneficiary group.

    Senior citizens receive higher FD interest.

  3. Final Answer:

    Senior citizens → Option A

  4. Quick Check:

    Extra interest benefit = Senior Citizen FD ✅
Hint: Senior citizens get extra FD interest.
Common Mistakes: Thinking all customers earn the same FD interest.

Mock Test

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