A Fixed deposit is also known as a Term Deposit, made in any bank for a specified term. It involves a fixed maturity period and a consistent return at the end of that term. Fixed deposits, or FDs, are among the most popular financial instruments most banks offer to their customers. It is a preferred type of investment because it is less risky than equity investments. It helps you achieve long-term financial goals such as home ownership, education for your children, and retirement planning. One has to choose the bank or financial institution basis the best fixed deposit rates they offer.
How an FD works
- A Fixed Deposit is a financial asset offered by banks and NBFCs. It allows you to make payments in a lump sum of money and earn a return higher than a savings account. This return depends on the fixed deposit interest rate you sign up for.
- An FD can be issued for seven days to 10 years.
- When you start an FD, it begins earning interest based on the length of the deposit.
- Funds do not get locked into a Fixed Deposit. You can withdraw the funds in an FD before maturity if the need arises by paying a certain amount as a penalty.
- Some banks provide a tentative withdrawal facility, which results in a lower interest rate.
- The bank credits the principal balance and interest to the account holder’s bank account on the maturity date. The bank can also roll over the principal and /or the interest amount if instructions are provided beforehand.
Ways to open a Fixed Deposit
There are two ways- online and offline
- To open an offline fixed deposit, visit your nearest bank branch. Submit the necessary documentation along with the deposit amount.
- Now, you can open an account in the comfort of your home through the digital platform. The procedure may differ from one bank to the next.
10 steps to Opening an FD
Follow the steps below to open a Fixed Deposit account online:
1. Visit the bank website and log in with your existing personal credentials.
2. Find “Term Deposits” or “Fixed Deposits” from the menu.
3. Click on the option to create a new fixed deposit or ‘Open an FD’.
4. Select the type of FD you want to open and click ‘Proceed’. If you are 60+, select the ‘Senior Citizens’ tab.
5. Select the account from which you will make payments.
6. Fill in information such as principal and tenure
7. Fix your maturity instructions. Ultimately, the principal and interest should roll over, or the principal would roll over while the interest would get credited to the bank account. Otherwise, the principal and the interest rate should roll over or get deposited into the bank account.
8. While selecting the duration, there will be a tab where you can check the interest rates as per tenure. Best to look in case a marginal adjustment in tenure allows you a higher slab of return.
9. Confirm your information and transfer the funds to make your payment.
10. Download the FD receipt for future reference.
Types of Fixed Deposits
There are several types of FDs. Here is a quick way to get the hang of all the options.
– Standard fixed deposit
A standard Fixed Deposit entails investing money at a predefined interest rate for a set period. A traditional Fixed Deposit has terms ranging from 7 days to 10 years. It is the most commonly chosen and best FD option among stakeholders.
– Special Fixed Deposit
Special Fixed Deposits are called that because they are only available for a limited time. A particular period can range from 290 to 390 days. Special FDs have a higher interest rate and are popular among various stakeholders.
– Fixed Deposit with Tax Savings
Unlike standard Fixed Deposits, Tax-Saving Fixed Deposits could be booked for less than five years. The amount invested is tax-free under IT Act, but the interest earned on the FD is taxable.
– Fixed Floating Deposit
A Floating Fixed Deposit’s interest rate keeps changing quarterly or yearly, allowing people to benefit from changing interest rates. The RBI’s guidelines govern changes in interest rates. It is also one of the best Fixed Deposits available.
You may also Read – How does a fixed deposit work
Fixed Deposits have long been an appealing investment method for Indians. It is due to the security of the principal sum and how the money grows. It provides people with a consistent source of income in the form of interest, which can be claimed. With banks offering higher interest rates to their investors, the popularity of FDs will undoubtedly grow over time.
A Fixed Deposit increases your morale and validates your financial security. The best part about an FD is that it is simple and convenient. Once you understand the structure and functioning of an FD, you can open one online or offline.