What is Fixed Deposit & How to Open a FD account?

Saving or investment is topic of everyone’s interest, nowadays everyone needs to do savings . Most of us choose FD Fixed deposit as a saving option. Investment and savings allow us to grow our wealth and return good rate of interest. With investment anyone can achieve their financial goals, such as purchasing a car, buying a house, or helps in any kind of emergency fund. Having sufficient funds in your savings allow you do anything without any second thought. It could also enable you to take part in new opportunities that arise such as starting a business.

So, in today’s blog you will get information about FD (Fixed Deposit), advantages of fixed deposit and so on. Let’s get started.

What is Fixed Deposit (FD)?

Fixed Deposit or FD is a financial instrument offered by banks and other Non-Banking Financial Companies (also known as NBFCs). Fixed deposits are long term savings that give higher rates of interest as compared to other types of deposits such as Recurring deposit. Because of the longer duration of freezing or depositing of funds, fixed deposits are also called term deposits or time deposits in countries like India, Canada, Australia and New Zealand among many others. Fixed deposits are referred to as “bonds” in the United Kingdom. At the end of the deposition period, the depositors (customers of the bank who make fixed deposit accounts), get a lump sum amount which includes the interest as well as the principal investment. Due to this feature of getting a big amount over a period of time, fixed deposits look like an attractive long period lottery to investors. 

The investors can decide the period and amount they want to deposit, on the basis of which rate of interest is decided by the financial institutions. It must be noted that the rate of interest remains the same no matter inflation, deflation, or fluctuations in currency value. 

Understand about fixed deposit interest rates

Fixed Deposit Interest Rate

Fixed deposit rate or FD rate is the rate of interest on fixed deposits. Interest on fixed deposits are calculated by two ways – in terms of simple interest or compound interest. 

Simple Interest

Under this method, the rate of interest is same for every year. Every year, the interest is calculated on the same capital invested at the very beginning. The interest amount of each year is finally paid back to the depositor along with the capital fund at the end of the term, as a lump sum.

Compound Interest

Under this method, interest for a year is calculated on the principal as well as accumulated earned interest for all the previous year. So, for instance, the interest you earn in year 2020 will be calculated on the principal plus all the interest that have already been earned for the previous years, since the year the interest cycle started. 

How to calculate FD interest rate with fixed deposit calculator?

Fixed deposit calculator or FD calculator is used to calculate the interest on fixed deposits. There are two types of FD calculators, one for simple interest and other for compound interest. A simple interest uses the rate of interest, principal, and tenure of fixed deposit to calculate the interest amount. 

While in the case of compound interest we need tenure, amount, principal, rate of interest and number of compounding years to calculate the interest amount. 

How to open a fixed deposit account?

Fixed deposit accounts are very commonly opened and thus banks offer a very user friendly mechanism for the same. Users can open fixed deposit accounts in two ways, offline account opening and online account opening. 

Fixed deposit account opening offline

Opening a fixed deposit account online is a cake walk. And the best way to do so is open a FD account in the same bank you have your general account in. The first step is obviously reaching the most conveniently accessible branch of your bank.

There you must ask the teller for a FIXED DEPOSIT ACCOUNT OPENING FORM, and they’ll provide you with the same. Fill the form and submit it to the authorities with the required documents ( these might vary from bank to bank). 

Once checked, the authorities will give you a fixed deposit limit confirming the formation of your fixed deposit.

Fixed deposit account opening online

Opening a fixed deposit account online is even more easier than opening one offline at your bank. All you have to do is log in to your bank’s online banking portal/application.

Now fill out the FIXED DEPOSIT OPENING form. This is not as time consuming as offline account opening as the bank already has most of your details, and thus doesn’t need KYC. Now transfer funds from your account using net banking facility. And voila you are done with the fixed deposit account.

Also Read: How to Check Airtel Data Balance

Benefits of fixed deposit account

FD accounts are very beneficial for the account holders. The advantages of the same are so many that even government has also got its own fixed deposit account scheme under the post office. Some of the major benefits of opening a fixed deposit account are- 

1. Low Risk – Interest of fixed deposit accounts stays the same no matter the fluctuations in the market. It ensures safety of investment and assured returns.

2. Insured Investment – RBI ensures safety of investments in fixed deposit up to INR 1 lakh, which reduces the chance of risks even further.

3. Regular Income – The investor can choose schemes to get regular income credited to their accounts on a monthly, quarterly or annual basis. This gives a steady inflow of funds.

4. Easy Liquidity – Fixed deposits, though not suggestive, can be liquidated at any time as per the need of the investor, preferably only in the case of utter emergency.

Disadvantages of opening a fixed deposit account

No matter how sugar coated fixed deposits seem, they are still not all golden. With the big list of pros, also come some cons that one must be aware of before investing in fixed deposits. Some of the most deeply concern able demerits of fixed deposits are- 

1. Blocking of Funds – Fixed deposits block a big chunk of funds of the investor for a major time frame, leading to shortage of investments for investors in times of need. And liquidising funds is not an easy decision to make as one doesn’t know if a bigger need awaits.

2. Low Interest Rates – One of the biggest drawbacks of fixed deposits is the low interest rate of investments. Many other kind of investing platforms provide higher rates of interest as compared to Fixed deposits and thus seem more attractive.

Understand Post Office FD account Interest Rates

In India, the government via the post offices provides the service of fixed deposits to the general public. The rates are on basis of tenure from 1 to five years, with no limit of investment. Though the lower limit for investment is Rs. 1000. It must be well noted that these dates are even subject to change. 

Rates are as follows- 

1 year – 5.50%

2 years – 5.50%

3 years – 5.50%

5 years – 6.70%

Conclusion

We finally conclude that fixed deposits are both good and bad. But we do incline towards supporting them as we believe that they are great saving options when done wisely. With this article we in no way support any kind of money investing platforms but just hope to share some information and our personnel opinions on the same to help you make informed decisions.

Also Read: What is demand draft?

FAQ’s

Ques 1. What is the minimum investment needed for post office fixed deposit?

Ans. The minimum required investment for post office fixed deposit is INR 1000.

Ques 2. Can I transfer my post office fixed deposit account to another location?

Ans. Yes, post office fixed account can be transferred and accessed from anywhere in the country.

Ques 3. Can a minor have a FD account?

Ans. Yes, a minor can have a fixed deposit account but it can only be converted after attaining age of maturity. 

Ques 4. How frequently is interest credited in a FD account?

Ans. Interest of fixed deposit is created annually in the same account.

Also Read: How to Check Airtel Data Balance

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