How Does A Fixed Deposit Work?

By Author: Neha Sharma
Total Articles: 170
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An excellent way to preserve your savings, a fixed deposit (FD) is a risk-free and reliable way of investment that provides you with a uniform interest flow. Mainly offered by banks or NBFCs, it gives a higher interest rate than a savings account. The total time frame of the deposit can range from a few days to years. Usually, the higher the maturity period, there the higher is the rate of interest.

How does it work?

When money is invested, you lock away funds for a determined period that earns interest. Benefiting both, the investor and the bank, FDs are easy to open and operate, and are safe and secure. As this is for a longer tenure than a savings account, it helps banks have an easy flow of funds as well. The principal amount helps to earn interest on a cumulative basis. Therefore, you can just open an account and sit back and relax to see your investment amount grow.

Two important factors while making a deposit is to check the fixed deposit interest rates and the tenure. Sometimes even a day can make a difference in the rate. Therefore, carefully select a tenure that provides you with the highest rate. ...
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Use the calculators for these deposits in the official websites of banks. You can maximize returns by choosing reinvestment plans that helps in earning higher rates.

What are the benefits?

1. One offering that provides great rates, flexibility and security.
2. Senior citizens can avail higher interest rates on FDs.
3. A real easy way of investment that gets great returns.
4. Swift booking of an account can be done through net banking.
5. A percentage of the amount can be taken as loan as well as per the specific bank guidelines.

Opening a account doesn’t need elaborate process as well. It can just be linked to your savings account and you are good to go. You can move funds freely from your savings account to your FD with ease through net banking. Some banks offer greater rates on renewals of existing deposits thus helping to get higher returns at a cumulative pace. Most banks also offer the flexibility to liquidate the deposit in minutes, change your period of deposit, payment instructions or maturity in just a click of a second.
Author bio:

Neha Sharma is a student in her final year of CA. She loves to write in her free time on topics of her interest. While researching about banking products and services, she has briefed us about how a fixed deposit works.