Fixed deposit, or FD, is the most popular financial instrument that banks offer their customers. Fixed deposit is preferred investment because it is more secure than equity investments. You can even see the potential returns before you invest the money. If you are looking to reduce risk, it is a safe investment. You can use it to help you achieve your long-term financial goals, such as buying a house or planning for retirement.
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Fixed Deposits:
A Fixed Deposit is a lump sum of money that you deposit into your bank account. The fixed interest rate allows you to hold the money for a set time. You receive the investment amount along with compound interest at the end of the fixed deposit period.
What is Fixed Deposit?
We have simplified the meaning of fixed deposit to make it easier for you:
Fixed deposits are financial provisions offered by banks and NBFCs. They allow you to deposit a lump sum and earn a higher interest rate than your savings account.
An FD’s time period can be from 7 days up to 10 years. The time period for an FD is 7 days to 10 years. If you withdraw the money before maturity, you’ll be charged a penalty.
Fixed deposit allows you to choose the time period that suits your needs best. It can also be opened as long as there are no idle funds
A few banks offer an option to withdraw early, but with a lower interest rate.
The bank credits the principal amount as well as interest to the account holder on the date of maturity.
Before you invest your money, it is important to understand the type of investment available and what they offer. To make a smart decision, you need to know what a fixed deposit is and how to calculate the amount you can invest and the interest you will receive using an FD calculator.
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Different types of Fixed Deposits
You need to be familiar with the various types of Fixed deposits available on the market before you can set aside a fixed deposit amount. Learn more:
- Fixed deposit standard
Standard fixed deposits require that a person invest their money at a predetermined rate of interest for a set period. A standard fixed deposit can be held for 7 days up to 10 years. This is the most preferred FD option for stakeholders.
- Special Fixed Deposit
Special Fixed Deposits can be described as ”special” since they are offered for a limited time. The special period can last between 290 and 390 days. Special FDs are popular among many stakeholders because they offer higher interest rates and are more affordable.
- Fixed Deposits that save tax
The Tax Saving Fixed Deposits cannot be booked for less that 5 years, unlike the Standard Fixed Deposits. While the amount invested is exempted from income tax under section 80C, Income Tax 1961, the interest earned from the FD are subject to tax.
- Fixed Deposit Floating
A floating fixed deposit allows people to benefit from changing interest rates by having the rate change quarterly or annually. The guidelines of the Reserve Bank of India determine the change in the interest rate.
Fixed deposits have been a popular investment option for Indians for a long time. This is due to the security of the principal and the fact that the money grows at an assured interest rate. Fixed deposits also provide regular income in the form of interest which can be claimed or reinvested. Fixed deposits will continue to grow in popularity as banks offer better interest rates for their investors.
Fixed Deposit Features
We have already discussed the various types of fixed deposit meanings in the section above. To understand the meaning of a fixed investment and determine if it is right for you, you need to be familiar with its key features.
- You can only deposit the amount once. You can only make one deposit.
- The interest rate is higher than that of a savings account.
- The average duration is between 7 and 10 years.
- You can renew fixed deposits without difficulty.
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You cannot withdraw before the maturity period. The account holder must pay a penalty if an emergency withdrawal is made.
Benefits of Fixed Deposit
You now know what a fixed deposit is and how it works. Read on to discover the many benefits it provides.
- Guaranteed Returns
Fixed deposit accounts offer the best returns. This is a significant advantage over other investments such as mutual funds. You will get a fixed rate of interest on your money when the FD matures.
- It is easy to open
In just a few clicks, you can open a Fixed deposit account. It is possible to apply online, or you can ask an executive at your bank branch to open it.
- Higher interest rates
Fixed deposits allow people to earn higher interest rates than their savings accounts or other types of term deposits.
- Flexible Tenure
A fixed deposit account can be opened for 7 days or 10 years.
- Multiple FD accounts
At any given time, you can have more than one FD account. You can open a new FD bank account whenever you want to make additional investments.
- Additional tax benefits4
For a maximum of INR 1,50,000, you can apply for tax exemption under Section 80C of Income Tax Act of India 1961.
How do I open an FD account?
We now know what a fixed deposit is. Let’s find out how to open one. You can open a Fixed Deposit account online or offline.
Online Process
Investors can open an FD account online. You will be able to access benefits like easy payment, closure and renewal. You will need to follow different steps depending on the bank. The following is the procedure to open an online FD account:
You can open a fixed deposit account by visiting the official website for the bank of NBFC.
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- Log in or create an ID.
- Choose the FD account option.
- Please fill in all details, such as principal amount, nominee, tenure and so on.
- Confirm your details and make payment
- For future reference, make sure you save the receipt.