Some Facts Concerning Fixed Deposits

Article Written By: anjalivarma

By definition, fixed deposits mean a fixed-income debt security that is typically issued by a bank. It is also known as FD. In simpler words a fixed deposit is akin to loaning the bank your savings in lieu of a fixed rate of interest which the bank will pay back.

The interest rate that is payable to the investor is solely dependent on the maturity period of the fixed deposit. The rates are guaranteed and the tenure of the deposit is also fixed. The rate of interest is directly proportional to the tenure, the longer the maturity period the higher the interest rate.

Prior to selecting the bank one should always:

• Carefully check and ascertain the financial position of the bank,

• Enquire the rates of interest for different banks for different tenures.

• It is wise and prudent to keep multiple small deposits instead of investing a big amount in one FD, as this arrangement will be helpful while withdrawing money from the investment scheme during the time of financial duress. The other benefit that will accrue is the minimal loss of interest as one has to withdraw money from one or two small fixed deposits as against one big FD.

• Always check the deposits receipts for accuracy and error if any.

• Always fill-in the renewal column, as failing to do so will lead to the amount getting reinvested in to a new FD on maturity.

• It is of utmost importance to consider the inflation rate and the rate of interest. This is crucial as a high rate of inflation will reduce the real returns.

Key features:

•Tenure of a fixed deposit can range from a period of 15 days to 5 years.

•The rate of interest is compounded quarterly, half-yearly or even annually depending upon the bank in which the deposit is made.

•Rs 1000/- is the minimum deposit amount while there is no upper limit.

•Overdraft/loan facility can be availed against bank fixed deposits.

•One can withdraw the money in the fixed deposit in case of monetary emergencies but that will lead to loss of interest.

Key advantages:

• It is one of the safest avenues for investment; whether it s foreign, private or nationalized. It is governed by strict regulations of the RBI, and also give due weightage to the interest of the investor. In India all the bank deposits are insured under the Deposit Insurance and Credit Guarantee Scheme of India.

• A loan up to 75 - 90 percent of the deposit amount can be availed from banks against FD receipts.

About the Author

A fixed deposit is the best way to invest money in India because it gives you higher rate of interest in return. Check out HDFC fixed deposit rates .

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