Fixed deposit is a term which has been majorly used in public and private sectors. Fixed deposit is when you deposit a part or whole of whatever you have earned in terms of money in the bank for a fixed period of time. You cannot withdraw this money from the bank until the maturity period gets over. If you do so then you will not earn any extra amount. The depositor will get a higher rate of return than any other saving account. FD is considered to be a safe investment as it doesn’t include market risk like mutual funds.
Who should invest?
You can approach any bank or non-banking financial companies (NBFC), corporates and post offices too. You can open FD account as an individual as well as with a company for a fixed period of time and earn a pre-decided rate of return. Both types of accounts deliver interest on deposit based on monthly, quarterly or yearly maturity period. But these deposits varies from each other and there are certain risks involved in such deposits.
How to invest?
There are two plans you can opt any of them. They are:
- Non-cumulative Plans: These are also known as Traditional Plans, in which you can invest your money in the chosen plan and the interest will be paid to you in monthly, quarterly or yearly basis.
- Cumulative Plans: These are also known as Reinvestment Plans, in which you can reinvest your interest in the principle amount. At the time of maturity period, you will get that accumulated money.
What are the facilities?
Fixed deposit is all about getting additional money in return after completing the predefined tenure. That additional money is interest you get on principle amount. The principle amount which you deposit in the account can differ from bank to bank and so as the FD interest rate. The minimum amount is INR 1,000 to INR 10,000, and it can go to any limit which depends upon the depositor. You can also take the facility of online FD calculator which can help you to check how many interest you will earn.
When is the right time to invest and withdraw money?
The tenure scale for private and public sectors may vary from bank to bank like the minimum time can be one week and maximum can be 20 years.
There’s a facility provided by the banks that if someone wants to withdraw money in the middle of the tenure then they can withdraw up to 90% of the amount from the principle. This facility is called as the overdraft facility. So, that the agreement will not break before the maturity period. This withdrawal will be followed by the interest charge that you need to pay after submitting the rented money in the account. If someone breaks the FD and withdraws 100 percent money from the bank then he/she will not get any additional money in return. This is also known as premature withdrawal. The applicant can withdraw his/her money from the bank in a lump sum.
Banks also gives you the facility of auto-renewal of your FD. After the maturity period gets over the bank can automatically renew your FD if the FD is not claimed. If you earn more than INR 10, 000 in interest rate return in one year, you will have to pay tax on the exceeding amount. The amount of tax that you have to pay depends on the tax bracket you fall into.
Fixed deposit includes major advantages than disadvantages. So people generally use this finance option than any other option available in the market. It depends on how much you invest in this and for how long can you wait for maturity period to get over.