Fixed Deposits
Fixed Deposits (FDs) are a type of financial investment offered by banks and financial institutions, commonly known as term deposits in some regions. In an FD, an individual (or investor) deposits a specific amount of money with the bank for a fixed period, typically ranging from a few months to several years. The bank pays the depositor a predetermined interest rate on the deposited amount, and the interest rate remains fixed for the entire tenure of the deposit.
Here are the key features of Fixed Deposits:
Fixed Tenure: FDs have a fixed term or tenure, meaning the money is locked in for a specific duration chosen by the depositor at the time of making the deposit. Once the tenure begins, the funds cannot be withdrawn until the end of the term without incurring a penalty.
Interest Rate: The interest rate on FDs is fixed and agreed upon at the time of opening the deposit. It remains constant throughout the tenure, irrespective of changes in market interest rates.
Interest Payment: The interest on FDs can be paid out at regular intervals (e.g., monthly, quarterly) or compounded and paid along with the principal at the end of the deposit term, depending on the choice of the depositor.
Safety: FDs are considered a relatively safe investment option because they are backed by the bank's credibility and are covered by deposit insurance schemes in many countries, which protect a certain amount of the deposit in case the bank faces financial difficulties.
Fixed Returns: Due to the fixed interest rate, FDs offer predictable returns over the investment period. This stability makes them attractive to conservative investors seeking steady income.
Premature Withdrawal: While FDs have a fixed tenure, some banks allow premature withdrawals under certain circumstances. However, this often results in a reduced interest rate and penalties.
Tax Implications: The interest earned on FDs is subject to taxation as per the income tax laws of the country. The tax rate depends on the depositor's tax slab.
Renewal Options: At the end of the FD tenure, investors have the choice to withdraw the principal amount or reinvest it in another FD for a new term.
