Fixed deposit account (FD) investments constitute the most popular mode of investment in India. According to a report, Indians save ₹4,25,725 on average in FDs, making them the most preferred investment choice in India. FDs offer fixed returns to customers and help them grow their savings at an interest rate that is generally higher than those offered by savings accounts.
What is a fixed deposit account, and what are its key features?
Fixed deposit accounts are types of deposits offered by banks in which customers can deposit a pre-determined sum of money for a fixed period at fixed interest rates. The tenure of a fixed deposit account can range between a few days to several years. On the date of maturity of the fixed deposit account, the customer receives the invested principal sum with interest. Customers can calculate their returns on maturity in advance by using a fixed deposit interest rate calculator. Here are the key features of a fixed deposit account:
• The returns offered by FD accounts are fixed and are not affected by market volatility.
• FD investments are safe, and the risk involved is low.
• The interest rates offered by FD accounts are higher than those offered by savings accounts.
• Many banks like IndusInd Bank offer loans against FD accounts to customers.
• The interest earned through an FD investment is taxed as per the Income Tax Act of 1961.
• Customers can also choose to receive periodic interest payouts to manage their monthly expenses.
• Banks generally offer higher interest rates to senior citizens. IndusInd Bank’s Senior Citizen Fixed Deposits Scheme offers a higher interest rate (0.50% more) to individuals above the age of sixty as compared to regular FD interest rates.
Who should invest in a fixed deposit scheme?
FDs are very flexible investments that can benefit every category of investor. Here is a breakdown of what every category of investor can expect from an FD scheme:
• New investors can start small with FDs: Customers who haven’t invested before and would like to begin their investment journey with a low-risk investment can start with FDs. FDs also offer moderate-to-high returns, thereby helping first-time investors gain confidence while taking their first steps.
• Investors looking to plan for their retirement can choose FDs: Opening an FD account is a good way to plan one’s retirement. Investors can plan for their retirement early in life to receive a regular income through a guaranteed income stream after retirement.
• FDs are ideal for conservative investors: Investors who prefer safe and low-risk investments also can open FD accounts. FDs pose a very low risk to investors and offer moderate-to-high returns.
• Investors who are investing for the short term: Investors who wish to invest in the short term can also choose fixed deposit investments since they offer flexible tenures. These tenures can range from a few days to a few years.
• Investors who wish to build an emergency fund: Every investor must first build an emergency fund before they begin their investment journey. Fixed deposit accounts can be used to build emergency funds since they also offer high liquidity as compared to other forms of investment.
Every bank has a minimum deposit amount for an FD. Investors must check this criterion before making an FD investment. It is also advisable for investors to use a fixed deposit returns calculator to calculate their FD returns at the time of maturity in advance. Doing so can help them plan for their FD investments before investing.
