Fixed deposits (FDs) are a cornerstone of personal finance for individuals looking to secure their savings while earning a reliable return. If you’re considering where to park your money, this blog will guide you through everything you need to know about fixed deposits, ensuring you make an informed decision.
What is a Fixed Deposit?
A fixed deposit is a type of financial instrument banks and other financial organizations offer that enables people to invest a large sum of money at a fixed interest rate for a predetermined amount of time. Unlike savings accounts, where the interest rate can fluctuate, FDs provide guaranteed returns, making them a popular choice for conservative investors. When you invest in an FD, your money is locked in for a specific tenure ranging from as short as seven days to several years, during which you cannot withdraw the funds without incurring penalties.
Types of Fixed Deposits
Understanding the various types of fixed deposits can help you choose the right one for your financial goals:
● Standard Term Deposit
It is one of the most common types of FD, in which you deposit a lump sum for a fixed term at a predetermined interest rate.
● Cumulative Fixed Deposit
Under this fixed deposit, interest is compounded and paid out only at maturity, making it suitable for those who do not need regular income.
● Non-Cumulative Fixed Deposit
Interest is paid out at regular intervals (monthly, quarterly, etc.), ideal for those seeking regular income.
● Tax-Saving Fixed Deposit
It offers tax benefits under Section 80C of the Income Tax Act in India, with a lock-in period of five years. Investors can claim a deduction of ₹1.5 lakhs per annum.
● Senior Citizen Fixed Deposit
This type of FD provides higher interest rates for senior citizens and is available for individuals aged 60 or above.
● Flexi Fixed Deposit
This fixed deposit allows you to link your savings account, automatically transferring surplus funds into an FD while maintaining liquidity.
How Does a Fixed Deposit Account Work?
To understand how a fixed deposit (FD) account works, it’s essential to recognize the two key players: the bank and the customer. Banks require funds to lend to borrowers, and they obtain this money from customers through various accounts, including fixed deposits.
When you invest in an FD, you’re essentially lending your money to the bank for a fixed period in exchange for a set interest rate. The bank then lends this money to borrowers at a higher interest rate, earning a profit from the difference—known as the spread.
If you have some extra cash and are considering an FD, you can choose from various tenures, ranging from just a few days to several years. Generally, longer-term deposits offer higher interest rates. For instance, a 30-day FD might yield around 6%, while a one-year FD could offer about 7%. Interest rates can vary between banks, so it’s wise to compare options to find the best FD deal.
Why Choose Fixed Deposits?
Investing in fixed deposits comes with numerous advantages that are listed below:
1. Guaranteed Returns
One of the most appealing aspects of FDs is the guaranteed returns. Unlike stocks or mutual funds, where market fluctuations can impact your investment, FDs offer fixed interest rates, ensuring you receive a predetermined amount upon maturity.
2. Financial Discipline
Investing in a fixed deposit encourages savings discipline. Since your funds are locked in for a specific term, you’re less likely to dip into your savings impulsively. This can be particularly useful for individuals who struggle with saving money.
3. Ideal for Risk-Averse Investors
If you’re uncomfortable with market volatility or prefer safer investment options, FDs are a suitable choice. They offer security and stability, making them ideal for conservative investors or those nearing retirement.
4. Emergency Fund
Having an FD can serve as a part of your emergency fund. While it’s not as liquid as a savings account, it can be a source of funds when unexpected expenses arise, albeit with some penalties for early withdrawal.
Who is Eligible?
Eligibility criteria for opening an FD account are generally straightforward:
● Individuals (including minors with guardians)
● Joint account holders
● Partnership firms
● Companies and trusts
Documents to Open an FD Account
To open a fixed deposit account, you’ll typically need:
● A completed FD application form
● Aadhar card or passport issued by the Government
● PAN card
● Address proof (utility bill or rental agreement)
● Passport-sized photographs
How to Open a Fixed Deposit?
Opening a fixed deposit is a straightforward process. Here’s how you can do it:
1. Choose a Bank or Financial Institution
Research various banks and financial institutions to compare interest rates, terms, and other features. Bajaj Finserv, for instance, offers competitive rates and a seamless process for opening FDs.
2. Select the Deposit Amount and Tenure
You must decide on the amount and the tenure that you want to invest in. Most institutions allow you to open FDs for as little as ₹1,000, but the more you invest, the higher your potential returns.
3. Fill Out the Application Form
You can apply for an FD online or by visiting the bank branch. Fill out the application form and provide the necessary documents, including proof of identity and address.
4. Deposit the Amount
Once your application is processed, you must deposit the amount via cash, cheque, or an online transfer.
5. Receive Your FD Receipt
After your deposit is confirmed, you will receive a fixed deposit receipt. This document contains details such as the amount deposited, interest rate, tenure, and maturity date.
Factors to Consider Before Investing in FDs
Before you invest in a fixed deposit, consider the following factors as they can impact the returns on your deposits:
1. Interest Rates
Compare rates from different banks to ensure you’re getting the best FD deal.
2. Tenure
Select a tenure based on your financial objectives. Although longer tenures typically result in higher interest rates, they guarantee that you won’t require the money right away.
3. Premature Withdrawal Penalties
Understand the penalties for breaking your FD early, as this can impact your returns.
4. Financial Health of the Institution
Ensure that the bank or financial institution you choose is reputable and stable.
Conclusion
Fixed deposits are a great way to secure your savings while earning guaranteed returns. They offer peace of mind for risk-averse investors and encourage financial discipline. As you consider your options, don’t forget to explore what Bajaj Finserv offers. It’s a reliable choice that can help you maximize your savings potential with high interest rates of up to 8.65%* for senior citizens. Enjoy the benefit of flexible tenure and loan availing opportunities against your best FD by Bajaj Finserv.
So, why not take that first step today and start your journey toward a more secure financial future by buying FD online through the Bajaj Finserv app?