In India, Bank Fixed Deposits are one of the most popular ways to save money. They are a safe investment, offer good returns, and are easy to open.
FDs are also called term deposits. Bank fixed deposits form the main area of raising funds for banks.
In a fixed deposit, you put a lump sum amount in your bank for a fixed tenure at an agreed rate of interest. At the end of the tenure, you receive the amount you have invested plus interest. Amount invested in a fixed deposit usually cannot be withdrawn before maturity. Or they can only be withdrawn with advanced notice and by paying a penalty.
A bank fixed deposit is used by individuals, businesses and financial institutions to store their liquid funds for a fixed period of time for future use. Bank fixed deposits are relatively safe investments when provided by insured financial institutions such as banks that are duly regulated within the country in which they operate.
Bank Fixed Deposit has the following characteristic features:-
1] Entry Age Restriction –
A person needs to be above 18 years of age to open and deposit in a bank fixed deposit. Minors can open a bank fixed deposit, but it is to be operated by the natural guardian.
2] Investment Conditions –
Bank fixed deposit has some investment conditions. A minimum of Rs. 1000 has to deposited to open a fixed deposit account. There is no limit on the maximum account that can be deposited in a fixed deposit account.
Deposits over Rs. 15 lakh are eligible for higher interest rates.
3] Interest Rates –
Interest rates on FDs are fixed when you open the deposit and the rate depends on the tenure that you wish to hold it for. The main purpose of bank fixed deposit is to enable the individuals to earn a higher rate of interest on their extra funds. The rate of interest may vary as per amount, period and from bank to bank.
Senior citizens are offered higher interest rates on their FD’s as compared to general individuals.
Bank fixed deposit have interest rates ranging around 7% per annum.
4] Tenure of Deposit –
Tenure of deposit is the time duration for which an investor deposits/invests his/her funds. The funds remain locked-in for this tenure (early withdrawal subject to conditions). The tenure of bank fixed deposits range between 7 days to 10 years.
5] Nomination Facility –
Bank fixed deposit provides nomination facility. Nomination is a facility that enables deposit account holders to nominate an individual, who can claim the proceeds of the deposit accounts or contents of the safe deposit lockers, post the death of the original depositors.
There can be only one nominee per deposit. But, different deposits can be nominated in favour of different individuals.
6] Exit Option –
The depositor is given a fixed deposit receipt, which depositor has to produce at the time of maturity. The deposit can be renewed for a further period.
Withdrawals are not allowed. But, in case of emergency, banks allow to close the fixed account before maturity date. This attracts payment of penalties.
While FDs are fixed for an agreed tenure, you can take a loan against it when you need funds. The advantage is that your FD continues to earn interest; you don’t have to prematurely withdraw your FD, and end up paying a penalty.