Benefits of Fixed Deposit Account

Fixed Deposit (FD) accounts are among the most trusted investment options, especially for investors looking for a stable way to grow their savings.  Unlike market-dependent investments, FDs offer guaranteed returns at a fixed interest rate over a specific tenure.  By depositing a lump sum amount for a set period, investors can earn higher interest with tenure options ranging from a few days to several years.

Learn about fixed deposit advantages, types of fixed deposits, how to calculate interest, and more before you decide to invest.

What is an FD Account? 

An FD or fixed deposit account is an investment in which you deposit a lump sum amount with a bank or financial institution for a specific period of time.  Additionally, this amount earns interest at a rate fixed at the time of opening the account.  Its interest payout can be withdrawn monthly or quarterly or at the time of maturity. 

Features of a Fixed Deposit Account 

The key features of the FD account have been discussed below:

1. Interest Rate: The interest rate applicable to FDs is typically more than that of savings accounts.  The rate is set at the time of account opening and is fixed throughout the deposit tenure.
2. Minimum Amount of Deposit: The minimum amount to deposit for opening a FD account is ₹1,000.  However, different banks have different minimum deposit requirements. 
3. Maximum Amount of Deposit: There is no maximum limit for opening a FD account. 
4. Eligibility: To be eligible for a fixed deposit account, you need to be one of the following categories: 

• Hindu Undivided Families (HUFs)
• Sole proprietorship firms 
• Limited companies
• Partnership firms
• Sole proprietorship firms
• Resident Indians
• NRIs
• Trusts/ societies/ clubs

9 Advantages of an FD Account

Here are the most notable fixed deposit advantages you should know about: 

1. Low Risk:  Fixed deposits are low-risk investments as they are not affected by market fluctuations.  You earn the interest at the rate prevailing at the time of account opening despite any change in market interest rates during the tenure.  In addition to this, FDs yield decent returns. 
2. Flexible Options: Fixed deposits offer flexible tenures.  It ranges from a few months to several years.  It is advisable to select a longer period if you want higher returns. 
3. Loan Facilities: You are eligible to use your FDs as collateral to secure a loan.  This will provide liquidity without premature withdrawal of fixed liquidity. 
4. Not Market Dependent: Fixed deposit returns are not dependent on market conditions.  The interest rate which was set during the opening of an FD account remains unchanged. 
5. Tax Benefits: Tax-saving FDs provide tax deduction benefits under Section 80C of the Income Tax Act.  This further encourages long-term savings. 
6. Source of Income: You can get interest monthly, quarterly or annually.  Therefore, FDs can provide you with a regular income after retirement.  Alternatively, you can invest in a cumulative FD to build long-term savings.
7. Easy Investment: The procedure to open a fixed deposit is simple.  It requires a simple application and little documentation. 
8. Capital Security: Fixed deposits are one of the most safe investments.  Once you make the investment, your principal amount will be preserved, and you will get back the initial investment with the interest on maturity. 
9. Fixed Returns: Fixed deposits provide stable returns and offer predictable and fixed interest rates on your investment. 

Types of Fixed Deposits

Here are 7 types of fixed deposits you can choose from: 

1. Standard Term Deposits: For standard term deposits, you are required to deposit a certain amount for a specific period, and in return, the bank offers you fixed interest at maturity or regular intervals. 
2. Flexi Fixed Deposit: Flexi fixed deposit allows you to make withdrawals up to a certain limit without incurring penalties or breaking the FD. 
3. Senior Citizen Fixed Deposits: These FDs are available to senior citizens of 60 years and above and offer higher interest rates over regular deposits.
4. Tax-Saving FD: It allows tax deductions of up to ₹1.5 lakh p.a on deposits made.  The interest is taxable, and the lock-in period for this deposit is 5 years. 
5. Recurring Deposit: You need to deposit a set amount at regular intervals for a fixed period.  The bank will offer interests at a predetermined rate, which varies on the invested amount and tenure. 
6. Cumulative FD: This provides high returns without regular payouts of interest.  Instead, the earned interest is reinvested in the FD account.  At the end of the tenure, you will receive both the accumulated interest and the principal amount. 
7. Non-Cumulative FD: Under this deposit, the investor receives the interest periodically, as per their preference.  This FD is more suitable for individuals who want a stable source of income. 

Calculation of Interest on Fixed Deposit 

The calculation of interest on FD is straightforward.  It depends on the investment duration, interest rate and investment amount.  FDs can offer both simple interest and compound interest.  The simple interest formula is:

Interest on Fixed Deposit = Investment Amount * Rate of Interest * Duration / 12 months

Deposit.  For instance, if you are investing ₹100,000 for 5 years at a rate of 6.5% p.a.  In this case, the maturity value of a cumulative FD will be ₹₹1,19,500.

To calculate compound interest, the formula to use is:

A = P x (1+r/n)^nt

In this case, the maturity value of the FD will be ₹1,38,042 with all the previous terms. 

Fixed Deposits are one of the most secure investment options, ideal for investors looking for predictable returns.  Fixed deposit advantages, such as higher interest rates, guaranteed returns, and flexible tenures, make it a reliable and safe investment option for risk-averse investors.

With predictable returns and financial security, disciplined investments in fixed deposits will secure your financial future. Download the  StableMoney application and find the best FD to invest in.