A fixed deposit (FD) is a kind of
deposit account rendered by banks for a fixed period at a fixed interest rate.
The money needs to be deposited only once while opening of account. At the end
of the period, the interest amount is computed on the principal amount. The total
sum along with the interest is paid to the depositor cumulatively. FDs or TDs (Term
Deposits) are a low risk savings alternative which provides a fixed return. The
duration varies from 7 days to 10 years. The rate of interest also changes
according to the duration of the FD, total rates in the economy as well as the
policy of the related bank.
Interest rates in 2019
Bank FD rate of 9.25% provides fair
returns which is adequate to cover the inflation rate. A depositor has to be
careful before picking FDs of non banks because these FDs carry market as well
as credit risk. The degree of risk with non bank FDs is mirrored in the degree
of credit ratings attributed to the FDs of NBFCs and HFCs.
Why pick FD?
FD renders a lot of
features and benefits thereby making it the most popular investment alternatives
accessible in India. Below-mentioned are some of the reasons of why one should
choose fixed deposit:
Sure returns on investment
FD earns every investor a fixed
rate of return on their investments. The rate of interest applicable is what
the bank commits to pay on the investments. This provides the investor a fixed
rate of return on their savings as well as the safety of their investment. In
addition there is no risk committed to the investments made.
Flexible tenure alternatives
Normal fixed deposit also
has the option of flexible which ranges from 7 days to 10 years. The rate of
interest on these FDs also differs with different tenure alternatives. Though,
tax-saver FDs are available merely for 5 years or 10 years fixed period.
The minimum as well as
maximum fixed deposit investment amount varies from bank to bank. Tax saver FDs
has a maximum limit of Rs.1.5 lakh per annum.
The rate of interest on
fixed deposits is higher than that which the bank pays on other savings
account. The rate of interest on FD varies from 3.5% to 9% per annum based on the
bank, investors’ age as well as the tenure that one invests the money for.
All customers who have FD
in banks get the facility of availing loan against their FD receipts. The rate of interest on
these loans is normally 1-2% higher than FD interest rates but lesser than most
Premature or part withdrawal
Banks allow the depositor
to withdraw fixed deposit amount before its maturity by imposing a premature
withdrawal penalty. The interest rates provided for premature withdrawal is normally
lesser than the rate offered on maturity.
Just have a look at the
present rate of interest on FDs of different banks as below in the chart: