One of the most common ways to save money in India is through fixed deposits. They are a safe investment with high returns and are simple to open.
So what exactly is a fixed deposit? Let’s find out!
A fixed deposit is a form of deposit that locks a sum of money for a set period. However, the duration of the fixed deposit is determined by the individual who deposits his assets. This term could range from a few days to several years.
Fixed deposits pay a predetermined rate of interest to depositors in exchange for locking in their funds. The invested principal amount plus maturity interest is paid to the account holder or depositor at the end of the term.
Fixed deposits are one of the most popular investment options in India, especially among risk-averse middle-class investors. How do fixed deposits work? Let's have a look.
Now that you've learned about FD full form and FD meaning, let's look at how they work using an example.
Let's say you have around Rs. 5,00,000. You want to put money in a fixed deposit scheme with a bank that pays roughly 8% interest per year. Assume your preferred tenure is 5 years.
Now, at the end of the 5-year tenure, the bank would pay out Rs. 7,42,974. This comprises your Rs. 5,00,000 primary investment and Rs. 2,42,974 in interest over 5 years.
It is not enough to simply finding the fixed deposit meaning, you must also understand the features of it.
The most important features of fixed deposits are as follows:
Requires a one-time lump sum payment, although further deposits can be made later in a new fixed deposit.
Provides assured returns.
You can choose to receive interest payments monthly, quarterly, yearly, or at maturity.
Low-liquidity investment.
In general, interest rates are greater than alternative possibilities.
Returns aren't impacted by fluctuations in the market.
There is no early withdrawal, however an emergency or deliberate withdrawal may be allowed with a penalty.
Option for reinvestment after maturity.
There is no maximum deposit amount.
Banks and financial institutions provide a variety of fixed deposit options, allowing clients to invest according to their needs and the amount they want to invest.
The following are the many types of fixed deposits and their definitions.
| Type of Fixed Deposits | Features |
|---|---|
|
Regular FDs |
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Tax saving FDs |
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Standard FDs |
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Cumulative Fixed Deposit |
Cumulative fixed deposit interest is only paid when the account reaches maturity. Customers aren't allowed to receive interest payments at regular periods. The interest earned on a cumulative fixed deposit is compounded at maturity and paid along with the principal amount. Thus, interest earned each year is not paid separately but instead added to the principal. |
|
Non-Cumulative Fixed Deposit |
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Bank Deposits |
Offered by banks to consumers with savings accounts. Interest rates are lower compared to those offered by non-bank financial institutions. |
|
Company Deposits |
NBFCs offer a higher rate of interest to companies with good credit ratings. |
|
Senior Citizen FD |
For individuals above the age of 60. Compared to other FDs, this one provides a higher rate of interest and flexible tenure. |
Here are the steps for opening an FD online:
Step 1: Log in to your bank's online banking platform with your username and password.
Step 2: Look for the fixed deposit option on the website or app.
Step 3: Fill out the required information on the given form to start a fixed deposit account.
Step 4: If you already have a bank account, you may not need to complete the Know Your Customer (KYC) process again. The bank already has your information.
Step 5: If you are opening a fixed deposit account with a new bank, ensure that you have all of the necessary KYC documents and a passport-sized image ready to upload or submit to the bank.
Step 6: Submit the completed form and any other documentation required by the bank.
Here are the steps for opening an FD offline:
Step 1: Go to the local bank branch and open an FD account.
Step 2: Request an application form for a fixed deposit account from the bank personnel.
Step 3: Fill out the form with all of the essential information and submit it to the appropriate bank official.
Step 4: Deposit the needed amount as instructed by the bank and obtain the deposit receipt.
Step 5: If you are opening a fixed deposit account with a new bank, contact a bank official who can guide you through the procedure. Also, bring all of the necessary Know Your Customer (KYC) documents and a passport-sized photograph to complete the account opening process.
Fixed deposit is one of the most straightforward investment alternatives available. All you have to do is invest a given amount of money over a set period. Each form of fixed deposit is unique, with particular advantages, limitations, and features, so the customer must examine their personal needs and goals when selecting the best option for them. Customers can select the fixed deposit that provides the most essential benefits and features for them by carefully considering the many options offered.
The minimum deposit for FDs varies from bank to bank. Furthermore, there is no maximum amount of money that can be invested in fixed deposits.
The procedure of choosing a nominee for an FD involves the account holder choosing someone who will be able to withdraw the maturity amount in the event of the account holder's death.
An FD can be created for a child as young as one year. However, for minors, a parent or guardian must open one on their behalf. Anyone over the age of 18 can open an FD account.
The FD plan determines the amount of interest paid. You can opt to receive interest payments monthly, quarterly, or annually. If you choose the reinvestment option, you will get the entire amount, including the principal, at maturity.
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