What is a fixed deposit?
Fixed deposit or FD is a financial service that is provided by the bank. In a fixed deposit, an investor can earn the interest rates on the deposited amount of money.
In FD, a person fixes a particular amount in a scheme provided by the bank for a definite period, and then the bank gives the interest rates on that specific deposited amount until the maturity date.
You cannot withdraw that fixed amount till the maturity date and if you cancel your fixed deposit then the bank will charge a fine against you and you have to pay that fine to release the deposited amount.
The interest rates that the bank gives on the amount of fixed deposit is high as compared to any other type of interest offered on a savings account or current account.
The interest rates provided by the bank varies from 4 percent to 7 percent. The duration of an FD is as less as seven days to as high as ten years. It is the best method to invest your money as there is no risk factor involved here.
Unlike the stock market, the percentage of profit in FD is constant, and you will have an idea that what amount you will get after the completion of the scheme.
Different types of fixed deposit
A bank has a variety of fixed deposit schemes available which has a difference in interest rates and has flexible tenure option.
The FD divides into two general types: -
There is an FD in which you have to deposit a certain fixed amount every month till the bank gives the maturity date and the monthly interest.
There is another type of FD where a fixed amount deposited for a certain amount of time and the bank will provide the interest rates on that particular amount.
Different banks have different names for their FD schemes. However, the features are same for all the bank's fixed deposit.
The deposit schemes are divided on several factors, and you are advised to choose the correct type of plan which best matches with your needs. The elements are mentioned- below.
The first factor that divides the types of schemes is the interest rates.
The interest rates depend on the amount, the maturity period. The senior citizen account holders get the higher interest rates as compared to others.
The different types of schemes have the difference in the maturity period. If you choose the long-term investment then the interest rates that you receive is also high as compared to short-term investment schemes.
The various types of FD's that a bank can name is tax saving scheme, reinvestment scheme, etc. before opening an FD your goal should be clear, and according to that goal, you should make your choice of investment.