A Fixed Deposit (FD) is a type of financial investment offered by banks where you deposit a specific amount of money for a fixed period at a predetermined interest rate. It is one of the safest and most popular investment options, especially for those who prioritize stability and guaranteed returns.
Key Features of Fixed Deposits:
- Fixed Tenure: The money is deposited for a specific time period, ranging from a few months to several years.
- Guaranteed Returns: The interest rate is fixed at the time of deposit and remains unaffected by market fluctuations.
- Higher Interest Rates: FDs typically offer higher interest rates than regular savings accounts.
- Premature Withdrawal: You can withdraw the money before the maturity date, but it may incur a penalty or lower interest rates.
- Loan Against FD: Some banks allow you to take a loan using the FD as collateral.
- Risk-Free: Fixed deposits are considered low-risk investments because they are not affected by market volatility.
Benefits of Fixed Deposits:
- Safety: Your principal amount is secure.
- Predictable Earnings: You know the exact amount you will receive at the end of the term.
- Flexible Tenure: You can choose the duration that best suits your financial goals.
- Tax Saving: Some fixed deposits, like tax-saving FDs, offer deductions under Section 80C of the Income Tax Act in certain countries.
Example:
If you deposit ₹100,000 in a fixed deposit for 1 year at an annual interest rate of 5%, you will earn ₹5,000 as interest at the end of the year (depending on the compounding frequency).
