Understand how Fixed Deposits work: An insight for Beginners

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Fixed Deposits

Term deposits are one of the stress-free investment options in India, which is why many Indians choose to invest in term deposits instead of any other form of investment. Another reason for investing in term deposits is because they are risk-free and a safer option as compared to investing in the stock market or the mutual funds. The Banks and Non-Banking Financial Companies offer two types of term deposits- Fixed Deposits and Recurring Deposits.

Fixed Deposits are onetime investment options where you have to invest some amount of money only once during the entire tenure of the Fixed Deposit. In recurring deposits, you have to invest a certain amount of money every month. While FD investments are pretty easy, it might be difficult to understand them if you have just started investing. Here is a guide that can help you understand Fixed Deposits better:

  1. You will earn fixed returns:

When you invest in Fixed Deposits, the money you invest will be kept safe with a particular financial institution for a pre-decided amount of time. You will earn a certain amount as a rate of interest from the banks or the Non-Banking Financial Companies. If you are a senior citizen, you will earn a better rate of interest than the rest. The Non-Banking Financial Companies offer a better rate of interest than the banks.

  1. You get to choose the tenure of the Fixed Deposit:

The term or the tenure is the duration for which you invest your money in Fixed Deposits. The tenure of the Fixed Deposit is completely dependent on your financial goals and your financial stability. You can choose to invest in Fixed Deposits for a minimum 12 months and a maximum 60 months.

  1. You get to choose how you receive the interest payout:

The banks and other financial institutions offer you an interest rate on the amount that you invest. This interest rate is decided by the financial institution and is generally constant throughout the tenure of the Fixed Deposit. You get the option to receive the payout every month/quarter/half-year/annual basis. If you do not wish to receive the payout monthly, then the interest amount that you were to receive will be reinvested. You can even take the help of an FD Calculator to understand how much interest amount you will receive.

  1. You cannot break your Fixed Deposit:

Once you invest your money in a Fixed Deposit, you will not be able to access this money unless the deposit matures. If you are in urgent need of funds, then you will either have to pay a penalty or the total interest amount that you were supposed to receive will decrease. However, there are a few financial institutions that allow you to withdraw some funds, but only after you have completed a certain amount of time. You need to make sure that you get all the details cleared before investing. 

  1. You can avail an overdraft facility:

If you are in an urgent need of some funds, then instead of breaking your Fixed Deposit you can choose to avail the overdraft facility. In an overdraft facility, you avail a loan based on your Fixed Deposit. You can withdraw up to 90% of the amount that you had originally invested and continue getting the benefits for the rest of the amount. Keep in mind that you have to pay a rate of interest on the amount that you have borrowed.

Investing in a Fixed Deposit is a very important decision, one that will help you gain financial stability. Investing in Fixed Deposits is always a good idea as opposed to spending the money on things that are not that important. Make sure that you check the market reputation of the financial institution that you are investing with so that you do not land in any sort of trouble in the future and end up losing all your money.