Fixed deposit (FD) is one of the safest investment options through which people can earn relatively higher interest in comparison to a regular savings account. Interest is accumulated on the deposited amount over a fixed period of time. The interest rate depends on the type of lenders (public sector, private sector, or small finance banks). Senior citizens are usually offered higher interest rates. In the case of an emergency, you can easily liquidate your FD and get the funds. The tenures in fixed deposit schemes are flexible. Investors can choose the tenure according to their convenience. Once the amount has been deposited in at a specific interest rate, it remains unaffected by further changes in interest rates or market fluctuations. Thus, the returns on your deposit are assured. With fixed deposits, there are several other benefits such as loan against FD. One can avail loans of up to 90 per cent of your deposit amount at very low interest rates. Investing in tax-saving fixed deposits will fetch tax deductions. FD also provides the option for regular income. One can get the interest sum credited as per the requirements on a monthly, quarterly, or annual basis.
To know what is a fixed deposit clearly, you need to know its prime features. Here are the significant ones:
The returns of a fixed deposit are guaranteed. You will get the same return agreed at the time of opening an FD. This is not the case with market-led investments, which offers returns based on the fluctuations of interest rates in the market. You will receive the same interest that was agreed to you, even if the interest rates fall. This makes the fixed deposit more secured than any other investments.
The interest rate on a fixed deposit varies depending on the term you choose. However, the rate of interest is fixed.
The interest you earn on the fixed deposit depends on the maturity period or tenure of the FD. With a higher tenure, you earn a higher interest. Moreover, the returns you get on your investment depends on whether you opt for receiving the interest periodically or reinvesting the interest, which is called a cumulative FD. You gain the benefit of compounding with this FD.
You can avail a loan against your fixed deposit in case you are in urgent need of funds. This saves you from closing your FD prematurely.
