Fixed deposits were always a preferred investment instrument since generations. Every person contributes a sum of their savings to the deposit account to earn fixed and steady interest. It is the reason why they are still popular as the lending rate does not affect the investment. They are safe and provide stable returns. People can also opt for online account opening without visiting the bank personally.
Also abbreviated as FD, it ensures capital protection and uniform flow of income. It is ideal for risk-averse investors who do not want exposure to equities. Upon maturity, the investor earns the invested principal and interest, which they can again reinvest. They are also known as term deposits because investors park their money in them for a given tenure.
Here are the reasons to invest in a fixed deposit:
- Fixed interest rate: All fixed deposits come with fixed interest rates. They keep revising depending upon the lending rates, but the interest rate applicable gets locked while booking it. Most of the banks offer high deposit rates and security with attractive rates of interest. The investor earns interest on the amount deposited in the account every month throughout the tenure.
- It is secure: Unlike financial instruments that depend on market movements, fixed deposits are safe instruments giving steady returns. If the interest rates decline, the investor will still earn the interest as promised when initiating the account.
- Return on investment: The returns on a fixed deposit depends on the interest rate and tenure. Individuals are likely to get more from investing in a long term deposit scheme. Still, short term ones give more liquidity, depending on whether the financial requirement is immediate. They can also pick various FD options to reinvest the proceeds or request payouts quarterly or monthly. In both cases, the returns will vary.
- Flexible tenures: Many banks offer flexible tenures on fixed deposit schemes for investors’ convenience. They can choose between long term and short term deposit schemes, depending on their financial requirement.
- Lending facility: Some banks also offer loans against the fixed deposit scheme. So, investors need not break or liquidate their deposits before maturity to get cash. They can continue earning interest on it and apply for loans in the form of an overdraft (OD).
An FD calculator helps investors determine the amount they will receive along with interest upon maturity of the deposit account. They can calculate and compare the interest they will receive by changing the deposit amount, tenure, and interest payment frequency. This tool is available on all banking and finance websites for convenience and quick access.