How does FD(Fixed deposit) work?
When opening a Fixed Deposit (FD), individuals choose a bank, provide necessary KYC documents, and complete an application form indicating the deposit amount and tenure. The principal amount, determined by the depositor, is invested for a chosen tenure aligned with their financial goals. The FD carries a fixed interest rate agreed upon at the outset, with the option of compounding at regular intervals.
Upon maturity, depositors receive the principal along with accrued interest and can decide to renew the FD or receive a payout. Premature withdrawals are possible in emergencies, but penalties may apply, and the interest rate could be adjusted, subject to specific terms varying among banks.
Various types of FDs, such as regular FDs, Senior Citizen FDs, and Tax-Saving FDs, cater to diverse needs with different interest rates and benefits. FDs are favoured for their stability, predictable returns, and capital preservation, making them a low-risk option for those seeking assured returns. However, it's crucial to note that the interest earned on FDs is taxable, and banks may deduct TDS if it exceeds a specified threshold.
In understanding how fixed deposits work, individuals carefully consider these elements, often choosing FDs for both short-term and long-term financial planning due to their secure nature.
Advantages of investing in FD (Fixed deposit)
Investing in Fixed Deposits (FDs) offers several advantages, making them a popular choice for conservative investors:
Stability and Predictable Returns
FDs provide a stable investment platform with a fixed interest rate agreed upon at the outset, making them attractive to individuals seeking assured returns over a specified period.
Flexible Tenures
​FDs come with a range of tenures, allowing investors to choose a timeframe that aligns with their financial goals. This flexibility caters to both short-term liquidity needs and long-term wealth creation.
Capital Preservation and Low Risk
The principal amount invested in FDs remains secure, offering capital preservation. FDs are considered a low-risk option compared to more volatile investment instruments.
Senior Citizen Benefits and Tax Efficiency
Many banks offer higher interest rates on FDs for senior citizens, providing an additional advantage for retirees. Tax-saving FDs, under Section 80C, offer fixed returns and potential tax savings, making them a preferred choice for tax-conscious individuals.
The advantages of investing in FDs encompass stability, capital preservation, flexibility, specific benefits for seniors and tax efficiency, making them an appealing option for a broad range of investors.