Fixed deposits are popular for novice investors seeking safety. Their appeal lies in security and ease. Opening one is simple. However, it is ideal to comprehend the key factors that matter. Newcomers are drawn to the low-risk and easy setup, yet knowing a few crucial points first can enhance the experience.
An FD: What is it?
A term deposit, time deposit, or fixed deposit (FD) is a kind of investment that banks and NBFCs provide. Often, this safe investing option means that users can invest a certain lump sum with a given financial institution for a certain amount of time.
Features Of Fixed Deposits
- FDs have an investment tenure of one day to several years. It varies across banks.
- Senior citizens get slightly higher returns by 0.5%.
- Market changes do not affect fixed deposit returns.
- Returns are guaranteed.
- You can choose to receive interest monthly, quarterly, yearly, or at maturity.
- Fixed deposits are typically low in liquidity.
- You can renew a fixed deposit after it matures.
Fixed Deposit Benefits
There are several benefits of fixed deposit, some of which are listed below:
- A Secure Investment Choice: Fixed deposits (FDs) are considered very safe investments. They guarantee a fixed interest rate, regardless of market changes. Thus, they offer reliable and steady returns.
- Guaranteed Interest Rate: Once one opens an FD, the interest rate for the investment is predetermined and cannot change. One can enter the number of years and rate of interest into the online FD calculators of different banks to approximate the amount they will earn at the time of maturity. These calculators are found on the websites of the respective banks.
- Compound Interest: If the fixed deposit, which has matured, has been reinvested, then there is the aspect of compounding of the interest. This means you are going to be receiving the interest on the principal amount as well as the further interest that has arisen from the total amount.
- Tax Saving: Tax-saving fixed deposits offer Indian bank customers a dual benefit: investing funds while trimming taxable income. Many financial institutions across the country provide these specialised FDs, allowing investors to allocate their earnings and potentially lower their tax burden strategically.
- Flexible Tenure: Investors can choose fixed deposits (FDs) for seven days to ten years. These FDs suit personal and business needs. For example, a tax-saving FD with a 5-year lock-in is available. You can access your money after this period.
- Loan Against FD: Instead of a high-interest loan, a person can use a fixed deposit (FD) for funding. Personal overdrafts are cheaper and have lower rates than FDs. Also, depositors do not need to close their FD to get a loan from the same bank. They can use the loan for emergencies and still earn FD interest.
In conclusion, fixed deposits in India are safe investments for steady, low-risk returns. By learning about the types, interest rates, and taxes on fixed deposits, investors can make smart choices that match their goals. Whether saving for short-term needs or long-term dreams, the right fixed deposit is key. It adds growth and stability to an investment portfolio.
