What is a Fixed Deposit?
A fixed deposit (FD) is a type of investment instrument offered by NBFCs and public and private banks. Investors can invest a lump sum in a fixed deposit in exchange for interest on maturity along with the principal amount. Investors cannot withdraw before their investment reaches maturity during the time period of the fixed deposit. Usually, investors pay a penalty and receive a lower interest rate if they withdraw funds prior to maturity.
Different banks have different fixed deposit interest rates. Usually, the interest rate on an FD is higher than the interest rate on a savings account. According to the option selected by the investor, the interest amount on the FD investment is either paid to the investor at regular intervals or after the maturity of the fixed deposit. Once the investment reaches maturity, investors will get both the principal and the compound interest.
Features of Fixed Deposit
- Safe Investment: Most market-led investments are subjected to changes over time. Fixed deposits, on the other hand, are more reliable and safer. This is due to the fact that FD returns are fixed. They are unaffected by market volatility and remain constant during the investment period.
- Interest Rates: The interest rate offered depends on the amount of the principal and the tenure chosen. However, the rate of interest is fixed.
- Flexible Tenure and Renewal: FDs may be held for terms ranging from one week to ten years or more. At the time of opening the FD, investors can select the term they desire.
- Assured Returns: The returns on a fixed deposit are guaranteed. A fixed deposit’s returns are ensured. Investors will receive the same return that was agreed upon when they opened the FD. This is not the case with market-led investments, which offer returns based on the changes in interest rates in the market. Because of this, a fixed deposit is usually considered more secure than many other forms of investing.
- Loan against FD: In the event that investors have an immediate need for funds, they can avail of a loan against their fixed deposit. This saves them from closing the FD prematurely.
Things to consider before investing in a Fixed Deposit
- FD provider: It is important to analyze the credibility of the FD provider before investing in fixed deposits. Therefore, it is advisable to research a bank’s credit standing before making a large investment. Instead of investing all of their money in a single fixed deposit, investors can spread their investments among several banks in small amounts to reduce their dependence on one bank.
- Interest Rate: Depending on the investment term investors select, banks and NBFCs provide different interest rates. Interest rates may vary from one bank to another. Additionally, it depends on the depositor’s age as well. In general, interest rates for seniors are 0.5% higher than those for regular customers. With Kuvera, you can explore and compare interest rates of various FDs like Bajaj Finance FD rates for better investment options.
- Loan against FD: During a financial emergency, investors have the option to use their bank’s fixed deposit account as collateral for a loan.
- Premature withdrawal clause: If investors want to withdraw their money from a fixed deposit before it matures, they usually have to pay a penalty. Most of the time, banks impose penalties by reducing the relevant interest rate by 0.5% to 1%. It is advisable to look for banks that have lower penalties for early withdrawals when choosing a fixed deposit. Instead of investing a large sum of money in a single deposit, it is better to invest in multiple FDs. Investors can take money out of one of their deposits in an emergency while leaving the other to grow.
- Nomination Facility: Investors might also need to select a nominee when opening an FD account. The nominee will receive the FD amount in the case of untimely death during the FD tenure. The details of the selected nominee are also mentioned on the account opening receipt.
How To Invest In An FD On Kuvera
- Download the Kuvera app and complete the KYC which is mandatory to invest.
- Go to Invest > Fixed Deposits and check out FD options from multiple banks. Compared with the tenure and interest rate and choose the one that works best for you.
- Complete the payment process and you are done within minutes!
Frequently Asked Questions (FAQs)
1. What is the minimum amount required to open a Fixed Deposit account through Kuvera?
You must deposit a minimum of Rs. 5,000 to open a Fixed Deposit through Kuvera.
2. What maximum amount can be invested in a Fixed Deposit through Kuvera?
As much as Rs. 5 Cr. can be invested in a Fixed Deposit through Kuvera.
3. What are some reasons to invest in a Fixed Deposit?
- Fixed deposits reduce the risk in your portfolio
- Fixed deposits guarantee returns upon maturity
- A great way to achieve short-term objectives