There are several ways to save money for the future. A few among them are investing in PPF, EPFO, RD, FD, etc. Comparing the given ways to save, FDs or fixed deposits are considered the best and risk-free to save for the future.
Investing in fixed deposits is the best way to deposit an amount today and save it for the future. Both banks and financial institutions offer competitive interest rates on the deposited value that are credited along with the principal amount after the FD maturity. Apart from that, there are banks that offer the ease to withdraw the partial amount from the FD account or the premature withdrawal of the complete amount before maturity. However, a penalty has to be paid by the consumer for premature withdrawal of the amount.
Additionally, banks allow consumers to open a fixed deposit account with the minimum value for a fixed tenure. In this blog, we will understand more about the fixed deposit account and its benefits.
What is a Fixed Deposit Account?
Fixed deposits are also known as ‘time deposits’ or ‘term deposits’. They are one of the best and safest investment services offered by banks and Non-banking financial companies (NBFC). The service allows customers to deposit a lump sum amount for a particular time period with the financial institutions. Apart from that, there are other features that make FD the choice of today’s market-
- Customers can earn interest on the deposited amount for the pre-decided tenure, as per the rate of interest locked earlier
- The rate of interest which is decided during the time of the FD opening process remains unaffected by any changes in market
- Customers can earn interest either periodically or at the time of FD maturity
- Premature withdrawal of amount from the fixed deposit account before maturity makes customers pay a penalty for it
- Banks offer competitive interest rates on fixed deposits
- Customers are given the flexibility to create fixed deposits from a minimum value to the maximum value as per the banking FD guidelines
- It is up to the customers to choose the tenure for the FD
Overview of a Fixed Deposit
Below is what differentiates fixed deposit from other financial instruments to save-
|Fixed Deposits||One of the types of the investment option|
Customers are required to deposit a fixed amount for a pre-decided tenure
Principal amount along with the earned interest is credited to the customer’s account after maturity
Premature withdrawal is allowed with a penalty to be paid
Compound interest is provided in case of reinvesting the FD amount after maturity
|Who offers FDs||BanksFinancial institutions|
|Ways to open FD||OnlineOffline|
|Types of FDs||Senior Citizen FD|
Tax Saving FDs
Flexi Fixed Deposit
Cumulative Fixed Deposit
Non-Cumulative Fixed Deposit
|Premature withdrawals||Allowed but with a penalty to be paid|
|How to calculate FD||Use FD calculator available online|
|Interest rates||Interest rates differ from bank to bank|
What are the Benefits of Fixed Deposit?
The benefits of fixed deposits are numerous, a few among them are listed below-
- Fixed deposits are considered the safest investment option as compared to other saving investments options
- Interest offered on the fixed deposit account remains unaffected even after fluctuations in the market, that too, throughout the decided tenure
- FDs offers an assured rate of interest
- Customers can check the interest they will receive on the deposited amount by using the FD calculator available on the respective bank’s website
- Customers can reinvest the matured FD amount again for the decided tenure, on which, compound interest will be provided to him/her
- Upon the maturity of a fixed deposit account, customers can either direct banks to credit the amount or reinvest the amount for another pre-decided tenure
- Banks offer flexibility to their customers to choose the tenure for fixed deposits
- There are several banks that offer tenure from 7 days to 10 years
- Several banks offer fixed deposits with tax-saving benefits
Who is Eligible to Open a Fixed Deposit Account?
A fixed deposit account can be opened by the following number of people-
- A person who would want to keep saving the money without taking the market risk
- A user who is a housekeeper and has decent money
- If someone has taxable income, FD can be a tax saving investment instrument
- A retired person who would like to have a regular source of income can apply for FD schemes
What is the Right Way to Choose Fixed Deposits?
The right way to choose fixed deposits is to go through the following factors-
- Compare all the types of fixed deposits offered by different banks
- Understand the type of fixed deposit that matches your requirements
- Check the lender’s credibility through the ICRA, CRISIL ratings
- Look for the customer service offered by the chosen bank
- Know if there is FD related flexibility or not
- Figure out if you need to submit a lot of documents or if KYC documentation is only required
- Connect with the banking personnel for more clarity about the interest rates, flexibility, premature withdrawal/partial withdrawal terms & conditions