A Fixed Deposit account is a savings account in which the principal amount and the interest earned are not withdrawn during the period of deposit. Fixed deposits are popular with people who are looking for a safe place to park their money. Accounts can be opened in any denomination and investments can be made for any term (from 1 month to 5 years).
Key Features of Fixed Deposits
- Assured Returns: Fixed deposits are a safe investment option that allows you to grow your wealth at a fixed rate of interest over a specified term. These deposits are ideally suited for investors who are looking for higher returns than offered by other savings options, but want to invest for a longer period of time.
- Flexible Tenure: You can open an FD with a tenure ranging from 6 months to 10 years. Each of your deposits will earn interest, which gets compounded on an ongoing basis. This means you get more bang for your buck as the interest is added to your principal deposit. And if you save with us for 5 years or more, even more perks await you!
- Steady Income Flow: Withdraw interest income at monthly, quarterly, half-yearly or annual intervals. Or choose to receive all the interest you’re entitled to in one lump sum at the end of the tax year by switching from monthly withdrawals to annual withdrawals.
- Loan against Deposit: If you’re in need of funds and want a quick-and-easy process, you can take a loan against your FD.
- Reinvestment Option: When you choose to reinvest your fixed deposit interest, you are converting the fixed deposit into a liquid deposit.
Fixed deposits are guaranteed by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The maximum amount that you can invest in Fixed Deposits is Rs.1 lakh per account and your principal along with the interest earned is insured for up to this limit
Types of Fixed Deposits
Fixed deposit is one of the safest investment options available in the market today. When you invest through FDs, your principal is safe and secure as it is 100% insured against any eventuality. However, after demonetization measures, returns from banks have fallen significantly. Bank/NBFC fixed deposits are not under RBI purview like company deposits. Company FDs can offer better interest rates at times when banks/NBFCs have reduced their rates or closed their windows to new deposits.
Our bank Fixed Deposits are the ideal choice for investors looking for a high interest rate. These deposits are typically backed by the company name and offer higher interest rates than regular FDs, but they’re also subject to a greater risk of default. Make sure you thoroughly research any company before you invest your money in a fixed deposit, because this investment is not covered by Deposit Insurance.
Return on Fixed Deposits
The interest rate on Fixed Deposit varies across banks and tenures. The interest rate is influenced by several factors like, the interest rate of Indian Government, Reserve Bank of India (RBI) repo rate, inflation, gross domestic product (GDP) growth and so on. This can be monitored regularly to get an idea of what is the best time to invest in FD.
The Cash Reserve Ratio and Repo rate are two of the key interest rates referred to by RBI in setting its monetary policy. The Cash Reserve Ratio and Repo rate are linked to each other as well. Any change in these rates will directly impact on other interest rates, including Fixed Deposit Interest Rates as well.
Current State of Economy:
In a developing economy, the need for credit is higher. To meet this demand, banks offer higher interest rates on the deposits they collect from depositors and lower interest rates on loans. If there is too much demand for credit, banks can issue bonds to raise money, which will increase interest rates on bonds and decrease the cost of capital provided by banks.
When the RBI reduces the interest rates on the cash reserve of banks, bank FDs get cheaper and a fall in interest rates. This is because marginal cost of funds comes down. Fall in interest rates will lead to an increase in savings as people are incentivised to save more, consumption will decrease and investment demand is expected to go up due to lower cost of borrowing or lower price for goods.