Everything You Need To Know About Fixed Deposit Schemes
A fixed deposit (FD) is an account where an investor deposits a sum of money for interest earnings. The savings in the account mature over a chosen tenor and provide the investor with fixed interest gains.
Here Are Some Important Terms That You Need To Know Concerning FDs:
- Interest Rates: These are the primary reason an investor seeks to invest in fixed deposit schemes. Fixed deposit interest rates can be a steady source of income for an investor or cumulative earnings depending on the FD scheme selected.
- Tenor: This is the duration over which your invested amount grows. This can range from 12 to 60 months or more, depending on your scheme. At the end of this period you have the option to either liquidate your FD, or renew it.
- Maturity: This term refers to the date on which the principal investment is returned to an investor. An FD matures over your chosen tenor and at maturity leads to interest earnings.
Now that you know these important terms, you can explore the two types of fixed deposits, namely cumulative FDs and non-cumulative FDs.
Types of FDs
- Cumulative Fixed Deposits: In simple terms, cumulative FDs can be defined as those deposits that do not have an interest pay-out over a periodical basis—like monthly, quarterly, or annually. In this option, the interest earned on your deposit is compounded annually, accumulated, and then paid at maturity, along with the principal amount. This type of investment is perfect for investors who do not need regular income. There is one major benefit from such deposits:
The compounded interest offers you the highest possible return on your investment as compared to non-cumulative FDs.
- Non-cumulative Fixed Deposit: This type of deposit is the exact opposite of cumulative FDs. Here, the interest payments are made on a periodical basis—like monthly, quarterly or annually as per the choice and convenience of the investor. These FDs thus offer frequent earnings which may be used for daily living expenses, especially by retired investors or senior citizens. However, the interest rate on such fixed deposits is lower. Here is the primary benefit of non-cumulative fixed deposits:
- They provide the investor with frequent interest payouts, and you will receive your principal investment at maturity.
What Do You Gain From Investing in FDs?
FD are regarded as a safe and convenient form of investment. Investing in fixed deposits can help you gain from the following benefits:
- Attractive Interest Rates: This is the primary gain that is most sought after by investors. The interest rates offered on FDs vary amongst lenders; however, the interest rates on an average are around 8%. Banks FDs usually offer more safety and lower interest rates while company FDs may be a little less safe but offer higher interests.
- Growth of Savings: Over the tenor, your fixed deposit grows and matures into a much larger amount. Investors are naturally attracted by this as it helps their savings multiply in value over a period of time. The matured amount can be used for a range of purposes, be it purchasing a vehicle or an asset, paying down payment for a new home, going for a family vacation, saving for education expenses, etc.
- Liquidity: In terms of liquidity, FDs can be quite flexible. In cases of emergency, FDs are can be broken any time by paying a penalty. Alternatively, you can take a loan on your FD at attractive rates of interest and use the financing to fuel you need.
- Risk-free Investment: There are numerous investment options for you to choose from, but investing in fixed deposits involves the lowest amount of risk. Fixed deposit investments are free from market fluctuations volatility and the risks associated with it. Hence you can be assured that the money you invest in FDs is safe and will not be lost in any way.
- Steady Source of Income: Non-cumulative FDs offer frequent and periodical interest returns that can work as income. You can use these interest returns for various purposes like daily expenses and purchases, paying off bills, etc. This income from interest is steady and constant, which is why FDs are one of India’s most popular investment scheme.
How Can FDs Be Forecast and Calculated Before Investment?
If you are an investor you must have certainly thought of estimating your returns from the fixed deposit to evaluate the final decision of whether to invest or not. To tackle this concern, Bajaj Finance offers you the FD calculator.
An FD calculator can be described as an online tool that is used to estimate the matured amount and interest rates of your FD, based on the amount you are planning on investing. This tool can help you decide and finalize on the amount to be invested. It can also let you judge and evaluate whether you are receiving the kind of returns you desire.
Also Read: Know More About Fixed Deposit Calculator
Bajaj Finance’s fixed deposit schemes offer high rates of interest, greater flexibility, and attractive pre- and post-application offers.