Which type of fixed deposit offers the highest interest rate: How does it work? Whether you're investing for income, saving for a long-term goal, or simply parking idle funds, knowing how fixed deposits work and how interest rates vary can make a significant difference in your earnings.

For Indian investors who prioritise safety and predictability, fixed deposits are among the most trusted financial instruments. They offer guaranteed returns over a specified tenure, making them ideal for conservative investors or those looking to preserve capital. However, while fixed deposits are relatively straightforward to understand, choosing the right type of FD can be confusing—especially if your goal is to earn the highest possible interest.

In this blog, we will help you understand the FD meaning, explore various types of fixed deposit accounts, and identify which options offer the highest returns. Whether you're investing for income, saving for a long-term goal, or simply parking idle funds, knowing how fixed deposits work and how interest rates vary can make a significant difference in your earnings.

FD Meaning: A Quick Overview

FD stands for Fixed Deposit. It is a financial product offered by banks and non-banking financial companies (NBFCs) where you deposit a lump sum of money for a fixed period at a pre-agreed interest rate. The amount remains locked in for the chosen tenure, and the interest is paid either periodically or at maturity, depending on the FD type.

Fixed deposits are known for:

1. Guaranteed returns, regardless of market conditions
2. Flexible tenure options ranging from 7 days to 10 years
3. Low risk, suitable for all types of investors
4. Loan facility against a deposit in emergencies
5. Minimal paperwork and an easy account opening process

Types of Fixed Deposit Accounts in India

1. Regular Fixed Deposit

Deposit a fixed amount for a chosen period and receive interest at the applicable rate. Interest can be received at maturity or at intervals.

2. Cumulative Fixed Deposit

Interest is reinvested and compounded until maturity. You receive the principal plus accumulated interest at the end.

3. Non-Cumulative Fixed Deposit

Offers regular payouts—monthly, quarterly, half-yearly, or annually. Good for generating a steady income.

4. Tax-Saving Fixed Deposit

Comes with a 5-year lock-in period and Section 80C benefits. Interest earned is taxable.

5. Senior Citizen Fixed Deposit

Provides an additional interest benefit (usually 0.25%–0.50% higher). Available to individuals aged 60 and above.

6. Flexi Fixed Deposit (Sweep-in)

Linked to your savings account. Excess funds are converted into FDs automatically. Offers both liquidity and returns.

7. Corporate or NBFC Fixed Deposits

Offered by NBFCs and corporate entities. Usually higher rates than banks, but require checking the credit rating.

Current Bajaj Finance FD Rates

As of now, Bajaj Finance Fixed Deposits are one of the most competitive and safest options in the market:

• For customers below 60 years: Up to 6.95% p.a.
• For senior citizens (60 years and above): Up to 7.30% p.a.
• Tenure: 12 to 60 months
• Minimum deposit: Rs. 15,000
• Additional benefit: Senior citizens earn an extra 0.35% p.a. over regular rates
• Payouts: Flexible – monthly, quarterly, half-yearly, annually, or at maturity
• Safety: Rated CRISIL AAA/STABLE and [ICRA]AAA(STABLE), the highest safety ratings

Example calculation:
If a senior citizen invests Rs. 1,00,000 for 36 months at 7.30% p.a. (cumulative), the maturity value will be approximately Rs. 1,23,538.

Which Type of FD Offers the Highest Interest Rate?

Among all FD types, cumulative fixed deposits from trusted NBFCs like Bajaj Finance generally offer the highest effective yields.

Why?

1. Compounding effect – Interest is reinvested, leading to higher growth.
2. Additional benefits for seniors – Up to 0.35% p.a. more.
3. Flexible tenures – Longer terms (36 months+) often fetch better rates.

However, the highest rate does not always mean the best choice. Safety, liquidity, and tax treatment should also be considered before investing.

How to Choose the Best FD Based on Returns and Risk

1. Compare rates – Use calculators or official fixed deposit rates pages.

2. Check compounding frequency – Cumulative FDs grow faster.
3. Evaluate credit ratings – Stick with AAA-rated issuers like Bajaj Finance.
4. Consider tax impact – FD interest is taxable under "Income from Other Sources."
5. Align tenure with goals – Avoid locking funds longer than needed.

Risks Associated with High-Return FDs

• Credit risk – Higher rates from low-rated issuers can carry default risk.

• Liquidity risk – Some FDs penalise premature withdrawal.
• Interest rate risk – Locking funds during a rising rate cycle can reduce flexibility.
• Tax burden – Higher interest rates may increase your tax outgo.

Conclusion

Understanding the types of FDs and their features helps you make smarter investment decisions. While cumulative FDs and deposits from NBFCs usually offer the highest returns, safety should never be compromised.

With Bajaj Finance Fixed Deposit offering up to 7.30% p.a. for senior citizens, flexible payout options, and the highest safety ratings, it is one of the most dependable choices for those seeking both security and attractive returns.