Features and Benefits of Fixed Deposit Account

Investments help you beat inflation, secure your retirement, and build wealth. When it comes to types of investments, fixed deposits (FDs) are one of the most popular and safe options across India. It allows investors to invest their hard-earned cash at a reputable bank or non-banking financial company for a set tenure and earn interest at a predetermined rate throughout the investment. 

With multiple features and benefits of a fixed deposit account, it is a great option for risk-averse investors. Know all the important features to make an informed investment decision.

Understanding Fixed Deposit Account 

Fixed Deposit (FD) is an investment in which you can invest a lump sum for a set amount of time with a financial institution or bank. The deposited amount will yield interest at a fixed rate, which is determined at the time of opening an account. You will receive the interest either every month, quarterly, half-yearly, annually or upon maturity.

If you meet the eligibility criteria for fixed deposits, consider FDs, as they are the safest investment options and are not subject to market fluctuations. In addition to this, the interest rate is also better than what a savings account offers. Tax-saving fixed deposits help in saving taxes. 

Features of Fixed Deposit Account

Read on to discover the primary features of fixed deposit account: 

1. Returns: The returns are compounded annually, quarterly or monthly. 
2. Tenure: the tenures of fixed deposits range between 7 days and 10 years. You can choose any tenure based on your financial needs and get the applicable interest rate.
3. Premature Withdrawals: Partial or premature withdrawals are permissible with a levy of penalties. 
4. Returns to Senior Citizens: Senior citizens usually receive 0.5% more returns than regular investors. 
5. Reinvestment: Upon the maturity of an existing fixed deposit, it will be automatically reinvested if you opt for a fixed deposit renewal. 

Benefits of Fixed Deposit Account 

Here are 9 out of the many advantages of fixed deposits: 

1. Guaranteed Returns: The primary advantage of fixed deposit is that it offers fixed returns. This implies the assurance of returns irrespective of any market fluctuation. You will receive returns at the predetermined interest rate as per your chosen tenure. 
2. Capital Security: Fixed deposits guarantee capital security. Your investment is secured with a bank, and you will receive the expected interest on time. Upon the maturity of the FD, the entire invested amount is given back to you, and there's next to no chance of losing money.
3. Loan Against FD: With fixed deposits, you can avail loan or overdraft against the amount that you have deposited. It offers you the benefit of instant liquidity. This way, you can continue earning interest while also catering to your emergency needs. In addition, it is also cost-effective as the interest rates on loans against FD are lower than personal loans. 
4. Customisable: All fixed deposits are customisable. You can start your fixed deposit with only ₹1,000, depending on the bank. There is no set maximum amount that you can deposit in a fixed deposit. You are eligible to choose tenure based on your needs and financial goals – short-term, mid or long-term. Therefore, it is easy for anyone to open a fixed deposit account. 
5. Collateral Facility: If you are considering a loan but have no collateral to pledge, FD investment allows you the ability to receive 90% of the principal in the form of an overdraft. Additionally, you can receive 85% of the fixed deposit principal amount as a loan. The loan or overdraft amount will be based on the terms and conditions of your bank and the deposit amount.
6. Liquidity: In times of emergency or financial crisis, you can withdraw the principal amount along with any accrued interest from your FD account. The withdrawal process is simple, ensuring cash accessibility whenever you need it. Moreover, some banks even allow partial withdrawals. 
7. Tax-Saving: You are eligible to claim tax deductions up to ₹1.5 lakh u/s 80C of the Income Tax Act. If you make an investment in a tax-saving FD, you will be eligible for tax deductions under this section. As a result, your tax liability will be reduced if you invest in a tax-saving FD. 
8. Suitable for Beginners: Once you make an investment in a fixed deposit account, you do not need to track the market to check its performance. The straightforward and simple process of this investment makes FDs ideal for both experienced and first-time investors. 
9. Insured Savings: A subsidiary of the Reserve Bank of India (RBI), The DICGC (Deposit Insurance and Credit Guarantee Corporation) insures your fixed deposit to the amount of ₹500,000. This implies that your FD and returns will remain unaffected even during your bank's financial crisis. 

How to Open a Fixed Deposit Account? 

Now that we are aware of the features and benefits of fixed deposits follow the steps below to open a fixed deposit account: 

Open a Fixed Deposit Account Online: 

1. Sign in to your bank account online. 
2. Tap on the “Transact” option and select “Open Fixed Deposits.” 
3. Choose the nearest branch, enter the FD amount and tenure, select a nominee, tap on "Continue", and finally select "Confirm". 

After this, you can download the receipt of your fixed deposit. 

Open a Fixed Deposit Account Offline: 

To open a fixed deposit account offline, all you need to do is download the application form for fixed deposit, fill it out with the necessary details, and submit it to your nearest bank branch.