Fixed Deposit Beginner

What is a fixed deposit? What are its features and benefits?

Fixed deposits are a well-liked investment choice for people prioritizing security. We will discuss the fundamentals of fixed deposits in this article and help you figure out whether they are right for you.

What is a fixed deposit?

Fixed Deposits (FDs) are a type of investment option that banks and other financial organizations offer. They allow investors to deposit money in a lump sum for a fixed period. The time frame can range from a few months to several years. The interest rates of FDs are often greater than those of traditional savings accounts.

Who should invest in an FD?

Fixed deposits are a terrific choice for those who want to invest safely to be assured of a fixed sum. It is a great option for cautious investors.

How to invest in an FD

FDs are simple things. The process of applying for them is not complicated at all. Here’s how you do it:

  • Choose a bank or financial organization that offers the fixed deposit option. To this, check and compare the interest rates various organizations offer.
  • Decide the deposit term and the amount you wish to invest.
  • Next, fill out the application mentioning these details and submit it with the supporting documentation. You may need copies of your ID and proof of your address.
  • After the documents are accepted, you can deposit the funds.

You will receive interest on your investment as soon as the fixed deposit account is created.

Different types of fixed deposits

There are different types of FDs available. Some of them are:

  • Regular FD: These are a more traditional variant. In them, investors make a lump sum deposit for a predetermined time.
  • Tax-saving FD: This special FD entitles the investor to get tax benefits under Section 80C of the Income Tax Act, 1961.
  • Senior citizen FD: These FDs are only available to senior citizens. They come with higher interest rates.
  • Flexi FD: This kind of fixed deposit allows investors to withdraw a partial amount without jeopardizing the fixed deposit.

What are the features of a fixed deposit?

Some of the key elements of a fixed deposit are:

  • Fixed returns: These accounts provide a fixed rate of return. The returns are determined at the time of account opening.
  • Low risk: Fixed deposits are typically regarded as low-risk investments since they provide guaranteed and fixed returns, and the principal is secure.
  • Flexible tenure: The tenure may last between a few weeks and several years, so investors have a choice regarding the investment horizon.
  • Easy liquidity: FDs can be easily liquidated before the maturity date, though there may be some penalties for early withdrawal.
  • Nomination facility: The investor can name a beneficiary.

What are the benefits of fixed deposits?

Here are some of the advantages or benefits of FDs for investors:

  • Guaranteed returns: Fixed deposits offer a guaranteed interest rate, making them an attractive investment option for risk-averse investors.
  • Low risk: They are regarded as low-risk investments because there is no risk of capital loss, and the main amount is safe.
  • Tax benefits: Tax-saving fixed deposits are an option. They help those who want to reduce their tax liability by ensuring their eligibility under Section 80C of the Income Tax Act, 1961.
  • High liquidity: Despite the penalty that may apply, fixed deposits can be easily liquidated before the maturity date. That makes them a flexible and liquid investment option.
  • Compound interest: Fixed deposits offer compounded interest. That means the interest earned is reinvested for further interest. The compounding of interest in this way means better returns.
  • Regular income: A steady income via interest payments makes FDs a good source of income for retirees.
  • No market volatility: Fixed deposits are a safe investment option because market fluctuation does not affect them.

Fixed deposit formula

The formula for calculating the interest earned on fixed deposits is as follows:

A = P x (1 + r/n) ^ (n x t)

Here:

A = Amount at maturity

P = Principal amount deposited

r = Rate of interest

n = Number of times interest is compounded in a year

t = Tenure in years

So, for example, if you invest ₹1,00,000 in an FD for a tenure of 3 years at an interest rate of 6%, compounded annually, the amount of maturity would be 1,00,000 x (1 + 0.06/1) ^ (1 x 3).

That is, A = ₹1,19,101

Why choose CoinSwitch for your FD investment?

FDs are soon going to be available on CoinSwitch. Here are some reasons why you should choose CoinSwitch for FD investments:

  • Wide range of options: On CoinSwitch, we bring you a wide spread of options from different banks and financial organizations.
  • Convenience: The CoinSwitch option is handy because you can invest in fixed deposits from the comfort of your home.
  • Competitive rates: Our fixed deposit interest rates are frequently greater than conventional banks.
  • Safe and secure: CoinSwitch uses the latest security technologies to protect your personal information and investment.

How to withdraw a fixed deposit

To withdraw a fixed deposit, follow the below:

  • Fill out the withdrawal form for fixed deposits.
  • Submit it along with the fixed deposit receipt to the bank or financial institution.
  • Fixed deposit withdrawals made before the maturity date may incur fees. In such cases, the interest earned may also be lesser than the initial rate. The institution will subtract these penalties and credit the relevant sum to your account.

Conclusion

A fixed deposit is a trustworthy and secure investment option for investors seeking fixed, guaranteed returns. They work well because of their low risk, flexibility, and tax advantages. Doing ample research before you zero in on the investment, of course, is necessary.

FAQs

What is fixed deposit with example?

A fixed deposit (FD) is a financial instrument where you invest a lump sum for a fixed tenure at an agreed interest rate. For example, if you invest ₹100,000 in a 5-year FD at 7% interest, you’ll receive ₹135,714 at maturity.

What is fixed deposit account in simple words?

A fixed deposit (FD) is a savings account offered by banks. You deposit a lump sum of money for a fixed period, and the bank pays you interest at a predetermined rate. At the end of the term, you receive your initial deposit plus the interest earned. It’s a safe way to grow your savings.

Is FD paid monthly?

Fixed Deposits (FDs) can offer monthly interest payouts. The interest frequency varies by the FD type. Some FDs pay interest monthly, while others pay quarterly, semi-annually, or at maturity.

Is it good to invest in FD?

Investing in Fixed Deposits (FDs) can be a good choice for those seeking safety and guaranteed returns. FDs provide a secure investment with a fixed interest rate, making them suitable for risk-averse investors.

Disclaimer: Fixed deposit products are generally considered safe investments as they are not subject to market fluctuations. However, investors are advised to exercise caution while investing in FDs. Risks include the financial position and solvency of the issuing company/entity during the tenure of the deposit. The facts mentioned in this article are for informational purposes only and should not be considered investment/financial advice from CoinSwitch.

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