What Are Fixed Deposits In Layman's Terms?

Fixed Deposits or FD

A Fixed Deposit (FD) is a secure financial instrument in which you will invest a lump sum amount in banks or NBFCs for a fixed tenor at a fixed interest rate. The tenors are flexible and range between 7 days- 10 years, whereas the bank or NBFC sets the interest rate.

After the maturity period, you will earn more than what you have invested due to the interest accumulated. Usually, you cannot withdraw your fixed deposit amount or liquidate your FD before maturity. But, if you pay the penalty, you can withdraw your fixed deposit in case of emergencies.

You can earn relatively higher interest from FD than from a regular savings account. The FD interest rate remains unaffected by the market changes, and on maturity, you will get guaranteed returns. You can choose to get your interest monthly, quarterly, half-yearly, or annual.

The FD interest rate varies from bank to bank and NBFC to NBFC. Senior citizens are offered comparatively higher interest rates.

Features And Benefits Of Fixed Deposits

There are certain features and benefits of FD you should know. Check them out here.

● The risk of losing the principal amount is almost zero.
● You will get assured returns that are unaffected by market fluctuations.
● You can avail of up to 90% of the fixed deposit amount as a loan against FD with very low-interest rates.
● Investing in fixed deposits will fetch you tax deductions as per Income Tax Act, 1961. Also, you can avoid TDS by submitting Form 15G or 15H, if your total income is not taxable.
● FD provides for a regular income as you can get your interest on a monthly, quarterly, half-yearly or annual basis.
● The FD renewal is easy, and you can also reap additional rate benefits on renewing your deposit.
● Senior citizens are offered comparatively higher FD interest rates.

Factors To Consider Before Opening FD

Here are some of the factors to consider before opening a fixed deposit.

● Always compare the FD interest rates offered by different banks and NBFCs to help you earn good interest.
● To ensure your fixed deposit's safety, review the lender's credibility.
● Before opening an FD, ensure the bank or NBFC you choose offers good customer service and a hassle-free application process.
● If you have a surplus amount to invest, you can split it into multiple FDs with different tenors and earn interest for every deposit.

A fixed deposit is a safe saving option to invest in, if you are looking to earn interest from an investment. Different fixed deposits are available in the market like standard fixed deposits, senior citizen fixed deposits, tax-saving fixed deposits, recurring deposits, Flexi fixed deposits, etc. You can choose the one that best suits you.

Author Bio: Vinod Gill is a writer who specializes in writing content on Finance and Banking subjects. He is a Digital Marketing Consultant, Blogger, and Co-Founder of Digital marketing Institute in Jaipur.