Fixed Deposit

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What is a fixed Deposit?

An investing tool that banks and non-banking financial institutions (NBFC) offer to their clients to help them save money is called as fixed deposit, or FD. With an FD account, you can invest a sizable sum of money for a set amount of time at a predefined rate of interest. You receive the lump payment and interest at the conclusion of the term, which is a wise financial strategy. For a fixed deposit account, banks provide a variety of interest rates. You can select a fixed deposit for a duration of no less than 7 days and no more than 10 years.

For this reason, an FD is sometimes referred to as a term deposit. If you open a fixed deposit account with a certain interest rate, it is assured because, regardless of any changes brought on by market volatility, the interest rate stays the same. Depending on your preference, you may get your interest either at maturity or on a regular basis. You cannot take the money out before the maturity date. You are required to pay a fine if you choose to. Knowing a fixed deposit's key characteristics is necessary to understand it clearly. The important ones are listed below:

Shape Shape

Features of Fixed Deposits

Guaranteed Returns

A fixed deposit has assured returns. The return that was agreed upon when you opened your FD will be given to you. This is not the case with market-led investments, which provide returns based on changes in market interest rates. Even if interest rates decline, you will still be paid the agreed-upon interest rate. The fixed deposit is thus more secure than any other form of investing.

Flexible Tenure and Renewal

FDs with flexible duration and renewal options can be employed for tenures ranging from one week to ten years. When you open the FD, you can select the chosen term. On maturity, you can renew the FD just as easily, but be sure to check the interest rates first because they might change.

IRS Tax Deduction

The Income Tax Act of 1961 permits a tax deduction for interest generated on the principal sum. When you file your taxes, you can include FD interest income in the "other income sources" category.

Amount of Interest

Your chosen tenure and principal amount will determine which rate of interest is better given. Typically, the interest rates for long-term FDs are greater while those for short-term FDs are lower.

Fixed Deposit Advantages

Understanding fixed deposits' advantages is equally important as understanding their definition.

  1. The rewards on fixed deposits are reliable and secure.
  2. The principal amount invested is completely safe.
  3. You have two options for receiving interest:
    • you can choose to do so on a regular basis (monthly or quarterly),
    • you can choose the cumulative method, in which case you will receive the full amount at maturity.
  4. Fixed Deposit returns are secure from market volatility.
  5. The majority of banks offer fixed deposit interest rates that are 0.5 percent higher for senior folks.
  6. In case you require more funding, you can also choose to apply for a top-up loan against your fixed deposit.

Eligibility Criteria for Fixed Deposit Investment:

The Following entities are Eligible to open a Fixed Deposit Account in India:

  • Indian Resident
  • NRI
  • Minors
  • Senior Citizens
  • Companies
  • Partnership Firms
  • Individuals or Joint Ventures
  • Societies or Clubs
  • Solo-Proprietorship