A fixed deposit (FD) is a type of investment in which you deposit a certain amount of money in a bank or financial institution for a fixed period. In return, you get a predetermined interest rate.
Key features of a fixed deposit:
- Fixed tenure: You lock your money for a fixed period, which can range from a few days to several years.
- Guaranteed returns: The interest rate is fixed at the time of deposit, providing a predictable income.
- Higher interest rates: Generally, FDs offer higher interest rates than regular savings accounts.
- Safe investment: The deposits are insured to a certain extent, making them relatively safe.
- Liquidity: Although you can withdraw your money before maturity, you may incur a penalty.
Types of fixed deposits:
- Cumulative FD: Interest is compounded and added to the principal, resulting in a higher maturity amount.
- Non-cumulative FD: Interest is paid at regular intervals (monthly, quarterly or yearly).
- Senior Citizen FD: Offers higher interest rates to individuals aged 60 years and above.
Factors to consider while choosing an FD:
- Interest rates: Compare interest rates offered by different banks and financial institutions.
- Tenure: Choose a tenure that suits your financial goals.
- Cash needs: Consider if you may need access to your money before maturity.
- Tax implications: Understand the tax implications of interest earned on FDs.
Additional features:
- Loan against FD: You can take a loan against your FD, using it as collateral.
- Sweep-in facility: Excess funds in your savings account can be automatically transferred to an FD to earn higher interest.
