Is fixed deposit same as bond?
No, a fixed deposit is not a bond. While both offer stable returns, their structure, risk, and purpose differ quite a bit.
Fixed Deposits (FD) are financial instruments you open with a bank. You deposit a fixed amount for a chosen period, and the bank promises a guaranteed rate of interest. It’s simple, predictable, and ideal if you want a steady income without worrying about market fluctuations.
On the other hand, bonds are debt securities issued by governments or companies to raise money. When you buy a bond, you’re essentially lending money to the issuer. In exchange, you’ll get regular interest payments and the return of your capital at maturity.
Here’s how they differ:
- Issuer: Banks offer FDs, while governments or corporations issue bonds.
- Risk: FDs are comparatively safer, while bonds carry higher risk depending on the issuer’s credit rating.
- Returns: FDs offer fixed returns, whereas bond prices can fluctuate with interest rate changes.
- Liquidity: You can usually break an FD early (with a penalty), but selling a bond depends on market demand.
- Taxation: FD interest is taxable annually. The taxation of a bond depends on whether it’s a government or corporate bond and how long you hold it.
In short, an FD is more like parking your money securely for a fixed return, while a bond is a loan you give to someone else with potential for higher gains. Personally, I see FDs as peace-of-mind investments and bonds as long-term wealth builders.