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What is a Fixed Deposit? (2023): Benefits | Features

Fixed Deposit

In India, fixed deposits are a common way for people to save money. If you’re new to investing, it’s among the easiest and safest possibilities. It will make portfolio management easier for you. Your savings can be parked in fixed deposits with banks or the post office to earn a higher income. Investing in fixed deposits lets you keep your resources safe until you can determine how best to distribute the funds.

What is a Fixed Deposit?

A fixed deposit, or “FD,” is a type of investment that has a set rate of return and a finite maturity term. When you invest your money, you get paid more interest than you would in a traditional savings account. A savings plan with a set maturity period is a fixed deposit. Your savings can be invested in FDs with maturities ranging from seven days to ten years. Periodic interest can be deposited into your savings account or allowed to build up in your deposit. You can prematurely remove money from FDs, but you will have to break it.

Fixed Deposit Details

Minimum Investment Rs.1000
Maximum Investment No Upper Limit
Interest Rate 2.50% to 8.5%
Types of FDs Regular FDs, Senior-citizen FDs, Non-Callable FDs, Flexi FDs, Special FDs, Corporate FDs , NRI Fds, etc.
Also known as Term Deposits
Premature Withdrawal Allowed for regular FDs with a penalty on interest rate
Secure Investment Guaranteed Returns

How to Open a Fixed Deposit Account?

Investors can open FD accounts both offline and online:

Online Process

Each bank has a different process for opening a savings account. There are variations among banks’ offerings. All NBFC and banks, however, generally adhere to the same pattern:

  • Open the net banking app for your bank.
  • Give the required information (principal, tenure, etc.) and choose the Open FD Account option.
  • Click continue, choose the branch, designate a nominee, input tenure and amount, and finally click confirm.
  • To refer to it later, download the receipt.
  • Be aware that every bank may follow a different procedure.

Offline Process

Regardless of whether they already have an account, investors can open a savings account (FD) at any bank. It is essentially the same to open a savings account offline, whether you have an existing account or not. The branch must be accessed in the first place. The following is the next step:

For existing accounts

  • If you already have an account, go to the closest bank branch.
  • Gather your FD form and fill it out.
  • An official from the bank will assist you in moving forward after you submit the form.

For new account

You would need to open a savings account first if you don’t already have one with the bank where you intend to open your FD account. On the other hand, you can open a savings account-free FD account with certain financial institutions. In those circumstances, in order to continue, you would have to finish the e-KYC procedure.

Documents Required for Opening an FD Account

In order to meet the requirements for FD eligibility, customers who already hold a savings account at one of the banks do not need to resubmit their documentation. The documentation that were provided when the account was opened are enough. A list of the documents needed to start an FD account is provided below.

Proof of identity 

Proof of address 

  • Passport 
  • Phone bill 
  • Electricity bill 
  • Bank statements

Eligibility Criteria to Open an FD Account

In order to open an FD account, you might need to fulfill the following eligibility requirements:

  • Nationality: Resident Indian or NRI
  • Age: 18 years or above (minors are also eligible provided they are accompanied by a legal guardian)
  • Type of Employment: Salaried and self-employed

Features of Fixed Deposit

  1. Tenure: Fixed deposit tenures are predefined and can be as short as a few days or as long as several years. Depositors are free to choose the tenure that best suits their needs and financial goals.
  2. Interest Rate: Offer an interest rate that is fixed and stays that way for the whole time the deposit is made.
  3. Interest Payment Frequency: Interest on fixed deposits can be paid out on a monthly, quarterly, semi-annual, or maturity basis, among other intervals. The option to choose the frequency of interest payments based on personal preference is granted to the depositor.
  4. Deposit Amount: A minimum deposit requirement for fixed deposits is required and varies amongst financial institutions. Depending on their preference, depositors can choose to make regular deposits through a recurring deposit or a lump sum payment.
  5. Premature Withdrawal: Fixed deposits usually have a lock-in period during which early withdrawals may not be allowed or may incur penalties. On the other hand, early withdrawal from some fixed deposits may be possible, albeit with restrictions and costs.

How Does Fixed Deposits Work?

Lending money to a bank or other financial organization is comparable to investing in foreign exchange. Your investment in a fixed-term deposit (FD) comes with a guarantee from the bank that, upon the end of the maturity period, you will receive your money back plus the agreed upon interest. Premature withdrawals from FDs may incur a penalty fee, in contrast to recurring deposits, where withdrawals are flexible and can occur before the maturity period.

Nonetheless, some banks don’t impose penalties for early withdrawals. Furthermore, loans secured by fixed deposits are provided by some institutions. To avoid losing out on the interest you earn after maturity, try not to take early withdrawals.

Benefits of Fixed Deposit (FD)

Here are some of the benefits of fixed deposits:

  1. Low-Risk Investment: In the market, FDs are regarded as one of the safest investment options when compared to other investment options such as stocks, bonds, mutual funds, etc. For a predetermined time, fixed-rate bonds (FDs) provide interest rates that are not influenced by changes in the market.
  2. Guaranteed Returns: The only type of investment that provides guaranteed returns is FDs. After the maturity time, you will receive guaranteed returns, and the interest rate will be fixed for the duration of the loan.
  3. Easy Investing: It’s easy to open a financial institution’s FD account. An FD account can be opened both offline and online. All you have to do to start an online FD account is choose the tenure and deposit amount.
  4. Power of Compounding: For a chosen duration, customers can reinvest the entire amount of FD. To receive compound interest in this context, one must be able to earn interest on both the capital and interest amounts.
  5. Easy Reinvestment: A customer can choose to have the money in their savings account credited or reinvested for a different time period when the account expires.
  6. Tax Benefits: One possible option is to choose tax-saving certificates of deposit (FDs), which often have a 5-year lock-in period, meaning that you cannot take the money before the conclusion of the term. With tax-saver FDs, you can deduct up to Rs. 1.5 lakh in income taxes under Section 80C of the Income Tax Act.

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