How fixed deposits work ?


Do you wish that your hard-earned money gets multiplied over time without putting in much of an effort from your end? Well, your wish can come true with fixed deposit schemes which will give you guaranteed return with added interest on the money you invest. The idle money in your savings account can be easily invested in FD since many banks and non-banking financial companies offer this investment scheme. However, before investing in a fixed deposit, it is necessary to have a clear understanding about how it works. People can also expect to have a high fd interest rates which makes it a lucrative option. 

The procedure of fixed deposit investment starts with you selecting a FD providing bank or non-banking financial companies. Once, you have selected the lender, visit the office of the lender or land on their official website. You can complete the paperwork and other formalities without putting much effort. Finally make the payment in lump sum and start earning on your investment. To help you better understand the procedure and conditions of a fixed deposit below goes a detailed elaboration. 

Opening an FD account

You can open a fixed deposit account either online or offline as per your convenience. You have to provide the required documents such as ID proof, address proof, PAN card, photograph, nominee, etc. to the bank official for opening the account. It takes a few minutes to open a FD account. Before investing your money in fixed deposit, however, you must check the credit ratings of your preferred lender given by ICRA, CRISIL, etc. to confirm their credibility. You must also consider the interest rate offered by different banks and NBFCs. Compare all your options and select the most profitable one for you. 

One time deposit

In FD, you have to deposit your money in a lump sum while opening the FD. This principal amount gets multiplied in the tenure for which you invest. However, you can open a new FD account for doing additional investment as one can hold multiple FDs at a time.

Fixing the tenure

Banks and companies tend to provide higher interest for longer FD tenure. You can invest for a time period ranging from 7days to 10years in most cases. You must consider the interest rate fluctuations before fixing your tenure. If the interest rates seem to rise in future years, you should opt for a longer tenure and vice versa. Having said that you must set your financial goal and choose the tenure you want to stay invested in accordingly.

Selecting payout intervals

Fixed deposits can either be cumulative or non-cumulative in nature. If you choose Cumulative FD, you will get compounded interest along with your principal amount at the end of the FD tenure. In case of Non-Cumulative FD, you can get back your return quarterly, half-yearly or annually. You can opt for any one of the time intervals.

Renewal and Withdrawal of FD

After a FD matures, you can withdraw the total corpus or renew the FD i.e., reinvest the amount. Many banks and non-banking financial organizations offer the facility of auto-renewal, where the FD is renewed automatically when it reaches maturity. Note that if you opt for the auto renewal, you will not be able to withdraw the money and if you do the standard pore withdrawal charges may be applied. 

Considering penalty and charges

When you go for an FD investment or any other investments for that matter, make sure to find out all the associated penalties and charges beforehand. The penalties and charges may affect your returns. Morver, some lenders charge less than others. 

Things to consider while investing in FDs

It goes without saying that you must do your research before starting investment. When it comes to fixed deposit investment, here are a few things that you keep under consideration.

  • Credit ratings of the lender
  • Offered interest rate
  • Pre-closure or premature withdrawal

With simple and flexible rules and conditions for application and maintenance, fixed deposits become the most hassle-free investment option. This is one of the safest investment tools and helps in diversifying your investment portfolio. It can act as a both future savings and a regular source of income. In addition, you can save on taxes by opting for the tax saver FDs. Do your research, select the lender best suited for your preference and start investing today.


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