A fixed deposit is a financial instrument provided by banks or NBFCs which provides investors a higher rate of interest than a regular savings account, until the given maturity date.
In a Fixed Deposit, you put a lump sum in bank for a fixed tenure at an agreed rate of interest. At the end of the tenure, you receive the amount you have invested plus compound interest. To compensate for the low liquidity, FDs offer higher rates of interest than saving accounts. Generally, the longer the term of deposit, the higher is the rate of interest but a bank may offer a lower rate of interest for a longer period if it expects interest rates. The interest is credited to the customers' Savings bank account or sent to them by cheque. This is a Simple FD. The customer may choose to have the interest reinvested in the FD account. In this case, the deposit is called the Cumulative FD or compound interest FD