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. It may or may not require the creation of a separate account.
Fixed deposits are a high-interest -yielding Term deposit and offered by banks in India. The most popular form of Term deposits are Fixed Deposits, while other forms of term Deposits are Recurring Deposit and Flexi Fixed Deposits. To compensate for the low liquidity, FDs offer higher rates of interest than saving accounts. The longest permissible term for FDs is 10 years. A fixed deposit, or 'FD', is a type of savings/investment account that promises the investor a fixed rate of interest. In return, the investor agrees not to withdraw or access their funds for a fixed period of time. In a fixed deposit investment, interest is only paid at the very end of the investment period.
Benefits Of Fixed Deposit
- Assured Return – If you invest your money in a fixed deposit account, you are assured a return. You will earn interest on your deposited amount, but the rate of interest depends on the tenure you have chosen. Banks in India are offering around 7% to 8% interest on Fixed Deposits at present.
- Flexible Payment – FDs allow you to choose how you wish to receive interest. You can choose to be paid annually, monthly or during maturity.
- Flexible Tenures – Fixed Deposits have flexible tenures. You can open a FD account for as less as 7 days. The tenure options are not the same for every bank.Also, it is not mandatory for you to have an account with a particular bank to open a FD account with it.
- Helps during Emergency – During emergencies when you are in need of money, a FD can help you a lot. Many banks offer loans against Fixed Deposits. Up to 90% of the deposit can be availed as loan. Some banks allow partial withdrawals of FDs as well.
- Risk Management – Financial instruments such as mutual funds, gold, etc., may provide high returns, but are also very risky. To adjust this market risk, it becomes important to invest in debt instruments. FDs will help you manage this risk as the returns are fixed.
- Easy to Withdraw – You can withdraw the amount you have deposited in your FD account at any time. For premature withdrawals, banks may charge you a small penalty.
- Saving Habit – Fixed Deposits help people in developing a habit of saving money. When you invest a certain amount in FD, that amount cannot be used until you withdraw it or maturity.
