FD stands for Fixed Deposit. It is an investment where you deposit a lump sum with a bank for a set time. The bank pays interest at a fixed rate, which is decided when you open the fixed deposit account. People like Fixed Deposits because they are very safe. They guarantee returns and eliminate the risk of losing money. Plus, they offer higher interest than Savings Accounts. This makes them a smart choice for stable returns. Some tax-saving FDs even help reduce taxes.
How Does An FD Work?
When people open a Fixed Deposit (FD) Account, they must deposit money for a set time. This money cannot be taken out before the term ends. Investment periods range from 7 days to 10 years, based on personal choice. The interest rate for an FD varies with the deposit amount and term. Longer terms yield higher rates and more interest. You can receive this interest monthly, quarterly, every six months, or annually.
Benefits And Features Of A Fixed Deposit (FD)
- Safety and Stability: Your funds are secure, ensuring steady returns despite market changes.
- Guaranteed Returns: Investment interest is guaranteed and is unaffected by market performance. An FD calculator can help you accurately estimate the returns on your fixed deposit investment based on different tenures and interest rates.
- Flexible Tenure: Choose from various tenures to match your goals.
- Liquidity: Fixed deposits allow early withdrawal for financial needs, ensuring liquidity.
- Loan Against FD: Before they mature, you can take a loan against fixed deposits (FDs). Banks offer overdraft loans against FDs, letting you borrow up to 90% of your deposit. Your FD still earns interest, so you avoid early withdrawal penalties.
Types of Fixed Deposits
Many FDs are available in the market to cater to the different needs of the investors. Some popular options are:
Conventional FD: Investors deposit a lump sum at a fixed interest rate for a fixed period. Interest is paid monthly, quarterly, half-yearly, or annually. You can open an FD online, through the app, or at a bank. You can get an Overdraft facility or withdraw part of your FD if needed.
Tax-saving FD: These FDs offer tax benefits under Section 80C. You can get a tax deduction of up to Rs 1.5 lakh. The FD can be opened like a regular FD, but the lock-in period is five years. Interest is taxable and deducted at source. You can receive interest payouts monthly or quarterly.
Senior Citizen FD: These are specialised FDs for senior citizens above 60. They offer higher interest rates than regular FDs. Many banks offer an additional 0.10% interest on deposits above five years. Account holders can also get a loan against their FDs.
Fixed deposits offer a secure and predictable investment option for those seeking stable returns and capital protection. With guaranteed interest rates, flexible tenures, and the possibility of liquidity through premature withdrawal or loans, FDs cater to a range of financial needs and goals. Understanding the features and benefits of fixed deposits can help you make informed decisions and optimise your investment strategy, ensuring your money works effectively for you.
