A Fixed Deposit (FD) is a savings tool offered by banks and NBFCs where you deposit a lump sum for a fixed tenor. In return, you earn a predetermined interest rate that remains unchanged throughout the period. This makes FDs a low-risk investment, offering predictable returns and appealing to those who prefer stability over market-linked uncertainties.
Fixed Deposit Meaning
The meaning of a Fixed Deposit lies in its structure. You deposit a specific sum of money with a bank or NBFC for a defined period. This period can range from 7 days to 10 years. During this period, the deposited amount earns interest at a fixed rate. The interest is added to your account either periodically or at the end of the tenure, depending on the type of FD chosen.
FDs offer an easy method to increase your savings. For instance, investing ₹1 Lakh in an FD at a 6% p.a. interest rate for one year could yield ₹6,000 in interest. This straightforward approach makes FDs appealing to beginners.
Features of Fixed Deposits
Here are the main features of Fixed Deposits:
Fixed Interest Rate
The interest rate on an FD remains fixed throughout the tenure. This ensures that you know the exact returns you will receive at the end of the period.
Flexible Tenure
FDs offer flexible tenures, ranging from a few days to several years. This allows you to choose a tenure that aligns with your financial goals.
Low Risk
FDs are considered low-risk because they are not linked to market fluctuations. The returns are assured, making them a reliable option for risk-averse individuals.
Premature Withdrawal
Some FDs allow you to withdraw the money before the maturity date. However, this usually comes with a penalty, and the interest rate may be lower in such cases.
Loan Against FD
Banks and NBFCs often offer loans against your FD. This means you can get a loan using your FD as collateral, without having to break the deposit.
Benefits of Fixed Deposits
Here are the key benefits of investing in Fixed Deposits:
Assured Returns
Since the interest rate is fixed, FDs provide assured returns. This is unlike market-linked investments where returns can fluctuate. For example, if you invest in an FD with a 7% p.a. interest rate, you can be certain about the amount you will receive at maturity.
Easy to Understand
FDs are simple to understand. You invest a lump sum for a fixed tenure and earn interest. This simplicity makes them suitable for individuals who are new to investing.
Flexible Investment Amount
You can start an FD with a minimum amount, which varies by bank or NBFC. Some institutions allow you to start with as low as ₹1,000, while others may have a higher minimum requirement.
Flexible Interest Payouts
FDs offer flexibility in interest payouts. You can choose to receive interest monthly, quarterly, half-yearly, annually, or at maturity. This is useful if you are looking for a regular income stream.
Tax Benefits
Certain FDs offer tax benefits under Section 80C of the Income Tax Act, 1961. By investing in a tax-saving FD, you could claim a deduction of up to ₹1.5 Lakhs in a financial year. However, these FDs come with a lock-in period of five years.
Loan Facility
With the loan against FD facility, you can get up to 90% of the FD amount as a loan. This is helpful in case of emergencies, as it provides liquidity without breaking the FD.
Safe Investment
FDs are viewed as low-risk since they aren’t affected by market fluctuations. The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures FDs in banks for up to ₹5 Lakhs, offering added security for your funds.
How to Use a Bank Calculator FD
A bank calculator FD is an online tool that helps you calculate the maturity amount and the interest earned on your FD. To use the calculator, you need to input the following details:
- Principal Amount: The amount you plan to invest.
- Interest Rate: The rate offered by the bank or NBFC.
- Tenure: The duration for which you want to invest the amount.
- Interest Payout Frequency: Choose whether you want the interest to be paid out monthly, quarterly, or at maturity.
Once you enter these details, the calculator will show the maturity amount and the interest earned. This helps in planning your investment and understanding the potential returns. Most banks and NBFCs offer this tool on their websites for easy access.
Things to Keep in Mind
Here are key points to consider when investing in a Fixed Deposit:
Premature Withdrawal Penalty
If you withdraw the FD before its maturity, you may incur a penalty. This could reduce the interest earned.
Tax on Interest
The interest earned on FDs is taxable. If it exceeds ₹40,000 in a financial year (₹50,000 for senior citizens), the bank will deduct TDS (Tax Deducted at Source).
Interest Rates
Interest rates can vary significantly between banks and NBFCs. Compare rates before investing to maximise returns.
Conclusion
Fixed Deposits are a straightforward and low-risk savings tool. They offer assured returns, flexible tenures, and various interest payout options. With the help of a bank calculator FD, you can estimate your returns and plan your investments. While they may not offer the high returns of market-linked investments, their predictability makes them a preferred choice for conservative investors.
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