What are Fixed Deposit & How to save Efficiently with them?

fixed deposit interest rates


How do fixed deposits work

The basic concept of a fixed deposit is very easy to grasp. You invest an amount of money in a lump sum in a fixed deposit. The amount stays locked in the FD for a specific period of time and earns interest at regular intervals. At maturity, you receive your principal amount along with the accumulated interest. You can opt for a monthly, quarterly or yearly payout as well. Some FDs runs on the cumulative method, where the interest gets re-invested and earns returns along with the principal amount increasing the total FD returns. There different sorts of FDs. The basic functioning of all sorts is the same. However, they all offer some additional and unique features. Here is the list of FDs you can choose from.

● Regular fixed deposits

● Cumulative fixed deposits

● Non-cumulative fixed deposits

● Tax-saving fixed deposits

● Senior Citizen fixed deposits

● Flexi fixed deposits

How to open a fixed deposit account

The process of opening a fixed account involves filling up the application form, providing required documents and finally submitting the amount you want to invest. The steps are more or less the same for all FD providers, although the document requirement may vary. You can take any of the two following methods for opening a fixed deposit account.


Offline

To open an FD fixed deposit account offline, you will have to visit the branch or office your respective FD provider. There, you will have to complete all the paperwork and submit the amount at the cash counter.


Online

For the online method, you have to go to the official website of the FD provider. You will have to complete the paperwork online and upload the scanned copies of the required documents. Once the paperwork is done, you can transfer the amount via the online payment gateways.


Opening an FD account at a bank where you already have an FD account is easy. Nonetheless, you can open FD at a bank even where you do not have an account. With such banks, you will have to complete the KYC process and provide the required documents before opening the FD account. If you are opting for the online process with a bank where you do not have any existing account, you can go for the e-KYC process.

Check latest SBI FD Interest Rates


Benefits of fixed deposits

By investing in fixed deposits, you can avail the following benefits.

fixed deposit interest rates

● The interest rates remain fixed throughout the tenure and do not get affected by any market upset. Hence, your fund will be secure.

● Fixed Deposits are insured with Rs. 5 lakhs by the RBI. If your provider fails t6o return your money, you will receive Rs. 5 lakhs as compensation.

● You can select the tenure of the short term or of the long term as you see fit for your investment goal.

● If you want a regular source of income, you can ask for regular payouts from the FD.

● You can take a loan against your fixed deposit during a financial emergency. The bank will easily grant the loan since your FD will be their security. Moreover, the interest rates of loan against FD is lower than other loans.

How to invest in fixed deposits efficiently

Do your research and choose the best

fixed deposit interest rates

Act according to your financial needs

Any investment is done with a goal. It can be saving your hard-earned money or plan for future. Hence, you should keep your financial needs in mind while investing. Fixed deposit provides great flexibility in terms of tenure and flexibility. The tenure can be as short as 7 days or as long as 10 years. A few banks offer tenure of up to 20 years. Opt for a short term FD if you require the money shortly. If you are saving for future requirements, long term FDs are more helpful. Additionally, you can get regular payouts and withdraw the total corpus at maturity.

Go for the ladder strategy

The ladder strategy simply means investing the principal amount in different investment vehicles with different tenures. You can apply this strategy and divide your principal amount in more than one fixed deposits with both short and long terms. The short term FDs will fulfill your short term requirements. The long term FDs will keep your amount locked for a longer time and fetch higher returns.

Try to avoid premature withdrawal

Most of the fixed deposit providers charge penalties for premature withdrawal. Try to avoid withdrawing money from your fixed deposit. If there is any financial emergency, you can opt for a loan against your FD which will come with a lower interest rate.

Reinvest the interest

Fixed deposits allow you to reinvest the incurred interest on your FD. Instead of withdrawing the interest, you can reinvest them. Thus, you can earn on the accumulated interest along with your principal amount. Reinvesting the interest helps you maximize your FD returns.

Save on the taxes

You can save taxes on FD returns by filling form no. 15G and 15H. There are tax-saving FDs with which you can avail tax exemption on your principal amount up to Rs. 1.5 lakhs.

Look for the additional benefits

Some banks provide special offers to online investors. Check if you can avail such offers. Moreover, if you make an FD at a bank where you hold an existing account or have done any other translation, you may get additional benefits.


In the past few years, corporate fixed deposit interest rates have been higher than the bank fixed deposit interest rates. Hence, corporate FD is a better option for higher returns. Bank FD or corporate FD, whichever you choose, you must ensure the credibility of the FD. A well-established bank is a safe option, as its rates, terms and conditions are predecided. If you are opting for a corporate FD, check their credit rating. A corporate with a higher credit rating is considered to be secure. Once you have invested money in fixed deposit, you can manage your account without any hassle.

I'm fintech advisor and working for finance related content.
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