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When it comes to managing your finances, the importance of investing and saving wisely cannot be understated. Today, safeguarding your future and having a safety net against any future financial burden is essential. There are plenty of investment options in the market, but Fixed Deposits are one of the top choices. FDs are a lucrative option that provides attractive interest rates and assured returns.
In addition to that, you can also avail extra tax deductions and even get loans against term deposits. So, if you want to save up for your retirement fund, have a specific financial goal in mind, or want to have an emergency fund, the Fixed Deposit is an excellent choice for it all. However, having an understanding of how FDs work is essential to making smart decisions. Read this blog to learn how a Fixed Deposit works.
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What is a Fixed Deposit?
A Fixed Deposit is an investment option that banks and financial institutions provide to their customers. With a Fixed Deposit, you can invest a certain amount for a fixed period of time at a fixed interest rate. It is important to note that the interest rate can vary from bank to bank.
You can open a Fixed Deposit for a duration of 7 days to 10 years. As an FD holder, you can get FD interest quarterly, monthly, half-yearly, or even yearly. Banks also offer different types of Fixed Deposits that come with various perks as well as varying tenures. Leading banks such as ICICI Bank provide FDs starting from as low as Rs. 10,000.
How Does a Fixed Deposit Work?
A Fixed Deposit is a low-risk and relatively safe investment where you invest your money for a certain duration and gain a fixed rate of interest over it. When you put in your money with the bank or the financial institution, they agree to pay a certain interest which is unaffected by the market or the economy. You can invest money for a period of 7 days to 10 years.
With leading banks such as ICICI Bank, you can also choose the frequency at which you want to receive your interest. It can be monthly, half-yearly, quarterly, yearly, or even at maturity. Additionally, the interest is compounded quarterly.
What are the Various Types of Fixed Deposits?
Fixed deposits are wonderful investments to make. From high returns to a guaranteed payout, there are a lot of benefits. But it is just as important to know which type of deposit would suit you the best. Hence here are the various types of fixed deposits:
1. Monthly Payout Fixed Deposits
Monthly Payout Fixed Deposits are the most common type of fixed deposit. Investors receive fixed monthly interest payouts, which are ideal for supplementing retirement income or covering daily expenses.
2. Standalone Fixed Deposits
ICICI Bank provides standalone FDs, for which a minimum amount of Rs. 10,000 is required. It offers an attractive rate of return, and a tenure of at least 6 months is required. The entire process is fully digital, with instant KYC and no need to visit a branch or open a Savings Account. Premature withdrawal options are also available for added flexibility. With no need to open a savings account, this FD is one of the top choices for investors.
3. Regular Fixed Deposit
Regular Fixed Deposit allows you to start with a minimum amount of Rs. 10,000 and choose a flexible tenure ranging from 7 days to 10 years, with interest compounded quarterly. You can conveniently open an FD instantly through multiple banking channels like iMobile, Internet Banking, ATMs, or by visiting any bank branch. Additionally, you can avail an overdraft against the FD and have the option for premature or partial withdrawals to access funds in case of urgent requirements.
4. Tax-saving Fixed Deposit
Under Section 80C of the ITA (Income Tax Act), this type of FD lets you have a tax deduction. Under this, you can have a deduction of upto Rs. 1.5 lakh per annum. Besides that, this type of fixed deposit has a lock-in period of 5 years.
5. Money Multiplier Fixed Deposit
Under the Money Multiplier Fixed Deposit, you can link your Savings Account with a Fixed Deposit to enjoy high earnings along with the liquidity of a Savings Account. The linked FD provides the flexibility of an automatic reverse sweep, activated when the Savings Account balance falls below Rs. 10,000. In this setup, FDs are broken on a Last-In, First-Out (LIFO) basis during the reverse sweep, ensuring seamless access to your funds.
What are the Benefits of a Fixed Deposit?
The Fixed Deposits provide various benefits, from tax benefits to attractive interest rates. Here are other benefits of a Fixed Deposit that make it a great investment:
1. Flexible Investment Tenure
Leading banks such as ICICI Bank offer Fixed Deposits with flexible investment tenure, which allows you to choose between short-term or long-term financial goals.
2. Assured Returns
Fixed Deposits are safer investments with assured returns. With a fixed duration of investment and a fixed rate of interest, you can completely count on the returns. In addition to that, these deposits are not affected by market fluctuations.
3. Tax Benefits
A Tax-Saver Fixed Deposit allows you to avail tax benefits. You can save upto Rs. 1.5 lakh tax deductions under Section 80C.
4. Higher Interest Rates
Fixed Deposits generally promise higher interest rates than savings accounts. Hence, investing in Fixed Deposits allows you to have better and higher returns.
5. Loan Against FDs
Banks and financial institutions usually offer loans against Fixed Deposits as well.
Conclusion
Fixed Deposits are a great investment option for people who want to secure a safety net for future uncertainties. This low-risk investment offers many benefits, such as flexible tenure and additional tax benefits.
Thus, if you are someone with a low-risk appetite or are new to investing, Fixed Deposits are a good option. FDs promise better and safer investments that can substantially add to your income in the long run. Additionally, it is essential to conduct proper research before making any investment.
