The most enticing investment choice for Indians has traditionally been a fixed deposit. This is because fixed deposits typically offer a higher investment interest rate than any Indian savings bank account.
What is a fixed deposit?
For a fixed period, the FD retains money, which is returned to the lender in principle, along with interest received upon maturity. In FDs, the interest rate is often predetermined and fixed. Today, there is also an option for investors to opt for flexible interest rates, but only a handful of financial institutions give this option to their investors.
Fixed deposits usually have a lock-in term, and when this time is over, an investor cannot withdraw the amount. If the investor must withdraw the money due to unexpected circumstances, they might need to break their bank FD. The investor becomes responsible for a small fine imposed on the interest rate upon breaching the fixed deposit.
Types of fixed deposits:
Standard fixed deposit: Nearly every bank in India offers its customers the regular fixed deposit. A typical fixed deposit allows an investor to invest his money for a specified period at a defined interest rate. The typical period of fixed deposits ranges from seven days to 10 years. This is the most common option.
Special Fixed Deposit: Special Fixed Deposits are unusual since they are usually offered for a particular period, anywhere from 290 to 390 days. A higher interest rate is offered by special FDs and is a popular choice among various investors.
Tax saving Fixed Deposit: Unlike regular fixed deposits, tax-saving fixed deposits cannot be booked for less than five years. Under section 80C, the amount invested is exempt from tax, but the interest generated from the FD account is liable to be charged.
Floating Fixed Deposit: Not every bank in India offers the option of a flexible interest rate to its investors. The rate adjusts quarterly or annually, and investors will benefit from a rise in the interest rate. RBI guidelines assess the adjustment in the rate of interest.
Senior Citizen Fixed Deposits: This particular FD is for those above the age of 60. The primary highlight of the scheme is that, compared with other FDs, it has a higher interest rate, thereby helping the elderly meet a wide variety of financial requirements.
Over the years, fixed deposits have become a desirable mode of investment for Indians due to the stability of the principal amount and the steady growth of the money deposited in addition to the guaranteed interest rate. It also provides investors with a periodic revenue stream via interest that they can either demand or reinvest. With banks offering their investors better interest rates, the popularity of FD only grows over time.