Fixed Deposit Account

Fixed Deposit is considered as one of the safest investment vehicles to facilitate growth for your portfolio. Many senior citizens enjoy regular monthly income by investing their retirement fund in Fixed Deposits. Youngsters use Fixed Deposits for tax saving purposes and as an emergency fund. Some of the notable advantages of having fixed deposit are discussed here.

Assured Returns

Fixed Deposit is the first choice for many investors because it provides assured returns. Based on your selected option, you will receive your interest and principal back at the end of the maturity period, irrespective of market fluctuations.

The other investment vehicles like mutual funds and stocks are subject to market risks. In case of adverse market conditions, you have to accept negative returns as well. That means, even your principal is not protected in such options.

Unlike other financial instruments like mutual fund or stocks, Fixed Deposit promises assured return from the date of investing. You can plan your future expenses by knowing maturity value of your fixed deposit. You can use online FD calculator by NBFCs to calculate maturity value by entering the amount of deposit, FD interest rate, and tenure.

Safety of Capital

The primary reason that motivates investors to choose FD is to protect their capital and grow at a reasonable rate. The investors can choose FD from a bank or financial institutions which can provide AAA rating safety to your capital. Many financial institutions provide a higher interest rate, but their ratings are lower than AAA. The investor, seeking the highest protection of his money should not take the risk to park their capital into lower grade investment.

The growth of Capital and Regular Income

Almost every Fixed Deposit comes with two options – cumulative FD and Non-cumulative FD. In case of cumulative FD, the interest gets accumulated and added to the principal at a fixed interval (usually three months). Hence, you get the power of compounding by choosing the cumulative option. You will get lump sum amount with compounding interest rate at the end of the maturity period. If you do not need regular income, you can choose this option so that you will get a higher amount at the maturity.  

On the other end, if you require monthly or quarterly income, you can choose the non-cumulative option, where you will receive interest rate pay-out at a pre-decided regular interval. Usually, you will have a choice to select monthly, quarterly half-yearly or yearly interest pay-out option when you open a fixed deposit account. In case of regular income option, the interest rate is slightly lower than a cumulative option. You can use FD calculator to know your interest income by entering essential details of FD.

Flexible Tenure

The fixed deposit offers to park your surplus money from seven days to ten years. You can choose the tenure as per your requirement. Usually, the tenure from one year to three years provides a maximum interest rate. Ideally, tenors less than one year offer better returns than savings bank account, but considerably lower than attractive FD interest rates. However, for the best return, you can choose FD tenure up to five years from reputed NBFC (Non-Banking Finance Company)

Emergency Money

Although the tenor of your FD is pre-decided at the time of opening the account, still you can withdraw money earlier in case of emergency. Such a withdrawal is called premature withdrawal. It is usually allowed after three months from the date of investment. You have to pay a small penalty in the form of lower interest in lieu of premature withdrawal. However, the moot point is, you will have access to your money in case of an emergency. To avoid premature withdrawal penalty, you should cultivate the habit of opening a fixed deposit account every quarter. Hence, after one or two years, you will always have one FD maturing every three months. Such a process will ensure flowing fund in your hand, and you will never have to break your FD for the lower interest rate.

The other option to access emergency fund is the loan against FD. If you have invested in FD earlier, it is effortless for you to apply for the loan against FD. Since your KYC (Know Your Customer) details are already available with the bank, you can avail the loan with minimum paperwork against your fixed deposit.

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Rahul Yadav
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