For some families, fixed deposits are considered the most preferable form of investment as the family members tend to think of it as a “safe” investment solution. However, it is not so easy to begin with the FD investments, but some of the FDs can have high return values. 

If you are a person who wants to save money without taking any major risks, then Fixed deposit schemes can be one of the best methods. In this article, we will try to learn how the FDs work and their various features.

What is a Fixed Deposit (FD)?

An FD or a Fixed Deposit is an investment offered by a bank or any other financial institution, in which an investor agrees to deposit a certain amount of money for a particular time with a guaranteed interest rate. 

The term of the deposit ranges from a few months to a couple of years, depending on the investor’s choice. These funds remain undisturbed while the investor earns the interest every month or at the end of the investment period.

How Do the Fixed Deposits Work?

Opening a Fixed Deposit account means having an obligation to deposit a fixed amount of cash in the account for a specified period, known as the term or tenure. The interest rate is fixed at the beginning of the FD and remains unchanged during the tenure. Hence, investors are insulated from the effects of fluctuating interest rates. By the end of the tenure at fixed deposit maturity, the investor would get the principal sum and the interest based on the principle and time.

Types of Fixed Deposits

There are mainly three different types of Fixed Deposit accounts, as mentioned below:

Regular Fixed Deposits: This type of FD account is normal where investors deposit one large lump sum for a predetermined period with a fixed interest rate.

Tax-Saving Fixed Deposits: These FDs are for a lock-in period of five years and the tax benefits apply under Section 80C of the Income Tax Act. However, the tax on fixed deposit is levied on the interest.

Senior Citizen Fixed Deposits: Completely dedicated to senior citizens, these senior citizen FDs offer higher interest rates than normal fixed deposit interest rates, generating more money during retirement.

What are the Major Benefits of Investing in a Fixed Deposit?

Let’s explore some of the major benefits of fixed deposit as mentioned below:

Safety: A key advantage of FDs is their safety feature. Different from other investment possibilities, FDs are not affected by market instability. Your main amount is not risky, and you always get a fixed interest during the deposit period.

Assured Returns: Through FD you earn the exact amount you want at the period’s end. The interest rates are settled in advance and remain the same for the entire period of repayments, which provides a feeling of security and predictability. With the help of a Fixed deposit calculator, you can easily understand the final amount you will receive by the end of the tenure. 

Stability: FDs allow you to balance your portfolio. These investment vehicles are perfect for people who are interested in low-risk investments and would like to ensure the safe investment of their money with a reasonable return.

Flexible Tenures: Banks have a wide range of terms for deposits ranging from a few months to several years. You can select a tenure that matches your financial objectives, either saving in the short run or for the long term.

Liquidity Options: Banks FD are specifically intended for holding until maturity to get maximum returns but some banks even offer premature withdrawal options in situations of emergency. On the other hand, the early withdrawal may incur a penalty and your interest rate may be commensurate with the amount withdrawn.

Loan Against FD: In such situations of emergency, you can deposit your FD as collateral and get a loan. Loan size can be a proportion of the FD value, and that way you don’t need to withdraw from the deposit. This means you get funds on short notice.

Senior Citizen Benefits: Banks often use higher interest rates for FDs on senior citizens. This is a means to ensure that the people in the retirement age will have extra financial stability.

Tax Benefits: By investing through tax-saving FDs under Section 80(C) of the Income Tax Act, one can claim a deduction up to a certain limit of the money invested. On the other hand, the interest paid to the FD is also taxable according to the income tax slab.

Regular Income Stream: FDs will give you a regular flow of earnings, an important concern for retirees and those looking to have a reliable income source. You are given an option every month/quarter/year to receive your interests based on best-fixed deposit rates in the form of payouts.

How to open a fixed deposit?

Opening a fixed deposit is easy. Follow the steps mentioned below:

• First, choose a bank you like. 
• Then, go there with your ID and address proof. 
• Fill out a form they give you. 
• Decide how much money you want to deposit and for how long. 
• Give them the form and your documents. 
• Put your money in the account. 
• They’ll give you a receipt and a certificate. Wait for them to confirm your account. 
• You can check it online or at the bank. 

That’s it! Now, you’re all set to earn interest on your savings.

Final Words

By now, you know everything related to Fixed Deposits, how they work, and Fixed deposit vs savings accounts primarily. In this article, you got to know that the safety of these fixed deposits is one of the major features that attracts citizens to choose this over other investment vehicles. So, if you want a good return on your investment in a safe and stress-free procedure, try out the FDs without any second thought. They are loaded with tons of benefits. From these fixed deposit explained, we hope you have got your basic doubts cleared.