Fixed deposits are offered for a wide range of periods, from brief tenures of 7 to 14 days to extended tenures of 10 years.
Fixed deposits are most preferred savings instruments for many investors as they are comparatively safe and offer relatively higher interest rates compared to a savings account. As the name indicates fixed deposits come with a fixed tenure. You have to wait till completion of the prescribed period to get all the benefits of a fixed deposit scheme.
Investors can avail fixed deposits from any bank or non-banking financial company. Fixed deposits offer return at a pre-determined interest rate and you can withdraw the principal amount along with the accrued interest after the maturity period. The investors can choose different time periods, short-term or long-term, for fixed deposits, depending on their financial goals and portfolio.
Fixed deposits are offered for a wide range of periods, from brief tenures of 7 to 14 days to extended tenures of 10 years. Higher the tenure of the FDs more will be the interest rate.
The interest rates on fixed deposits vary from bank to bank and NBFCs. Currently the FD interest rates range between 6.5% to 8% and even a few banks are offering higher interest rates for senior citizens.
How do fixed deposits work?
When an account holder deposits money at a bank, the lender may use that cash as a source of credit for other customers or companies. In lieu of that, the bank will provide interest to the account holder. Now, what becomes a challenge for the bank authorities is when these funds are withdrawn by account holders at any time. Hence comes fixed deposits where the bank gives a high rate of interest if investors agree not to withdraw their funds for a predetermined tenure.
In comparison to normal savings or interest-bearing accounts, term deposit accounts pay slightly more interest. Due to the restrictions on withdrawals, the interest rates are higher on FDs.
FD investments are risk-free investments, making them a good option for those with low-risk appetite.
Consumers are more likely to buy fixed deposits, also known as term deposits, when the banks offer higher interest rates. Those who are looking for a stable and risk-free investment, fixed deposits are a better option as the interest rates don’t fluctuate frequently. The banks and NBFCs only change the FD interest rates depending on the repo rate announced by the Reserve Bank of India from time to time.
Withdrawals
Investors should know one thing that as the name suggests the investment in FDs are for a fixed period. So, premature withdrawal or liquidation of a fixed deposit will attract a penalty. If you are not in a dire state of financial emergency it’s better not to touch your FD. In order to get the full interest and the total principal amount you should wait till the end of the maturity period, after which the amount will automatically be transferred to your linked savings account.
Benefits of fixed deposits
·Guaranteed returns
·Safe and stable investment
·Flexible in nature
·Comparatively high interest rate
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