Fixed Deposits – Benefits, Features, How to Open FD

Fixed deposits (FDs) are one of the traditional investment options. Most risk-averse investors prefer investing in FD. We have covered the following in this article:

Latest Update

RBI has announced a new rule applicable to unclaimed, matured FD accounts. That is the funds in an unclaimed, matured FD account will attract an interest rate as applicable to the savings account or the contracted rate of the matured FD, whichever is lower.

What is a Fixed Deposit?

Fixed deposits are an investment instrument provided by banks and other financial institutions such as non-banking financial institutions (NBFCs) and housing finance companies (HFCs). Under this, investors would deposit a lump sum over a period. In turn, they would get a fixed rate of interest throughout the investment. The rate of interest provided on FDs is much higher than that of a regular savings bank account. Once the tenure of the deposit ends, investors can withdraw their investment. However, they have a choice of reinvesting their money for another term.

Who Offers Fixed Deposits?

All scheduled commercial banks and some NBFCs and HFCs in India offer fixed deposits. However, if investors are to invest in FDs provided by an NBFC or HFC, then they first need to check the ratings provided by agencies such as CRISIL. This is to make sure that your money is safe. Private sector banks and other financial institutions may offer a slightly higher rate of interest than the public sector banks.

Features of Fixed Deposits

The following are the key features of fixed deposits:

• The investment tenure of FDs ranges from one day to several years, and it varies across banks
• The return on investment is compounded periodically, and it may be monthly, quarterly, or annually
• Senior citizens are provided with slightly higher returns (0.5% higher)
• Partial or full withdrawals are permitted (with penalties)
• Taxpayers can invest in tax-saver FDs to save taxes under Section 80C
• Once the investment matures, investors can reinvest for another term
• Loan against FDs are available
• Investors will accumulate higher returns if they invest for a more extended period

Benefits of Fixed Deposits

• Returns are assured as they are not tied with the market
• At times of financial emergencies, one can avail a loan against their FDs
• Investment is safe as banks and other financial institutions are always under the purview of the Reserve Bank of India (RBI)
• Compounded interest makes your investment grow at a much faster rate
• Premature withdrawals are allowed, so you will always have a corpus to fall back on at times of crisis

How to Open FD?

Fixed deposits can be opened both online and offline: Online:

• Log in to the selected bank account
• Search for ‘fixed deposit’ option
• Select ‘open FD’ option
• Duly fill the online application form
• Upload all the requested documents
• Transfer the amount you would like to invest

Offline:

• Visit the nearest branch of the bank or financial institution
• Duly fill the offline application form
• Attach the requested documents with the application form and submit
• Provide a cheque for the amount that you would like to invest

Fixed deposits are an excellent investment vehicle for those investors who don’t want to bear any risk. Longer the tenure more the returns accumulated as the compounding phenomenon powers them. FDs are flexible as investors can prematurely withdraw partial or full amount invested.