A fixed deposit is an investment offered by banks and NBFCs, where a person can deposit money and earn higher interest than savings bank accounts. The money can be deposited for a specific period ranging from 7 days to 10 years. Once the money is invested with the bank or NBFC, it starts earning interest based on the duration of the deposit. Usually, the amount deposited in the fixed deposit cannot be withdrawn before maturity, but you may withdraw early after paying a penalty.
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To suit the investment requirements of customers, banks and NBFCs offer different types of fixed deposits:
This FD scheme is for people above the age of 60 years, who earn an additional interest rate of 0.5%.
Bank Fixed Deposits (FDs) are generally safe investments because FD amounts up to Rs 1 Lakh per bank per branch are insured under the Deposit Insurance and Credit Guarantee Scheme of India. Fixed deposit interest rates are higher than SB account rates. Fixed deposits offer complete flexibility with regard to the tenure of investment. The term of fixed deposits can vary between 7 days to 10 years.
The biggest risk that fixed deposits face is the returns may be lower than inflation and reinvestment risk where the proceeds from the payment of Principal and Interest have to be reinvested at lower rates.
Fixed deposits are popular among the masses as they are safe investment avenues. However, there are certain points you must keep in mind before investing in fixed deposits:
The banks offer lower rates of interest on fixed deposits as compared to company fixed deposits. In times of inflation, returns from bank fixed deposits may eventually turn out to be low. But, as an investor if your concern is safety of investment, then you must go for bank deposits. There is no risk in keeping money in fixed deposits at Nationalized Banks in India. The Government of India is a major shareholder at all Nationalized Banks and these banks are monitored and controlled by the RBI.
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