Fixed Deposits are a popular investment and a saving option in India. It is a secure instrument that provides you with an opportunity to earn an interest on idle funds.
Fixed Deposit Defined
A Fixed Deposit is a special kind of savings account. It is offered by banks and other financial institutions authorized to offer deposit facilities to the public. Unlike in a normal savings account, money you put in a Fixed Deposit is locked down for a set period of time. You cannot withdraw any amount from a Fixed Deposit account before the full term.
The amount in the FD is part of the bank’s funds. It can be used towards providing home loans, personal loans or other credit facilities they extend. Because the money will be available for a defined period of time, banks pay a higher rate of interest on Fixed Deposits than on savings account. Use Fixed Deposit interest calculator to compare latest FD rates.
Can You Withdraw The Money Before Term?
In certain type of Fixed Deposits like the tax-saver Fixed Deposit, there is no way you can get the money deposited before the full term runs out. However, in most other type of Fixed Deposits, you can break the deposit before maturity. This will involve a penalty charge and you will also not get the full interest amount that you could get if you let deposit run to maturity.
You also have the option of taking a loan against most Fixed Deposit accounts. You can get up to 80 or 90% of the amount in the account as loan. This helps you avoid any penalty charge. You also keep getting the interest payment as the amount is not taken from the FD, it just serves as security for the loan. It is a good way to get a secured loan, the interest rate is also relatively low.For these reasons, Fixed Deposits are also considered as comparatively liquid investments.
Choosing a Fixed Deposit
Decide the type of Fixed Deposit you want to put your money in – long term, short term, tax-saver, special FD, Senior Citizen FD. You have a lot of choices. Go to financial marketplace websites and search for a list of the best FD plans offered by various banks.
Use Fixed Deposit calculator facilities on these websites to calculate your interest earnings from these offers. You can play around with deposit amount, tenures etc., to see how any changes in these factors affect returns.
Fixed Deposit Tenures
In India, you can create Fixed Deposits for tenures from as short a seven days to as long as ten years or more. So, they serve as a good way to park your spare funds until you need it.
Generally, the longer the tenure, the higher the interest rate offered. Still, even some short-term FDs can give you good returns. Use FD calculator to find the best plans offered by different banks and NBFCs.
Long Term Fixed Deposits
Long term Fixed Deposits can help you save funds for future use. These earn more interest – 3 or 5 year deposits can give you reasonable interest earnings. Tax-saving deposits are long term deposits that are locked down till the maturity period. They provide the benefit of tax-saving. The original principal amount is eligible for deduction under Section 80C of the IT Act.
If you are retired, or need regular earnings from your investments, choose an interest payout. Use Fixed Deposit Maturity & Interest Calculator to find how much FD interest rateyou can earn on your deposit. Compare different plans from across many banks and NBFCs. Choose the offer that gives you the interest earnings you expect.
If you do not need the interest amount to be paid out, you can choose to compound the interest. That is the interest amount is added to the principal and the next interest calculation is done on this increased amount. Thus, your total returns on the deposit are increased if you choose compounding.
Use a Fixed Deposit compound interest calculator to help find the best FD plan. In India, most banks compound interest quarterly. Choose this period rather than annual compounding, to optimize earnings on the deposit.