Fixed deposit or FD is one of the safest investment options that guarantee consistent interest rates on the principal amount. It is a great investment if you want to avert the risk and at the same time fulfil your long-term financial goals like buying a house or retirement planning.

Fixed deposits are an important financial tool for the new investors. The FD interest rate is decided by banks and it depends on their policies. Here is everything you need to know about fixed deposits, tax on FD and other details.

What is a Fixed Deposit? 

Fixed deposit is an investment method through which Bank deposits your money with you for a fixed period of time. If you are looking for a safe place to park your money, FDs present greater security than mutual funds and credit cards. The amount you can keep in your savings account is limited by the FD limit set by your bank – which is why FDs are generally used as stepping stones to larger loans or investments. Fixed deposit accounts have one advantage over recurring mutual funds – they pay fixed interest rates, so if the security rating of these funds changes, so too will your returns.

FD Interest Rates | Everything You Need to Know 

To help you understand how a fixed deposit works, here is a step by step break-down of the process:

  • Fixed deposit is the most common way to save money in India. It is a term used for a specific type of bank account (FD) where the customer deposits a portion of his/her salary or fixed amount to invest over a fixed period of time, thereby accumulating interest on it.
  • A fixed deposit is an account that earns interest. The interest rate offered and the length of time to maturity determines how competitive a fixed deposit is. Fixed deposit accounts can be opened for minimum periods ranging from four weeks to one year and their amount can go up to $10,000 or more. You can also choose a time frame between one week and 10 years.
  • You can start by selecting the amount you would like to deposit and then choose a duration for your deposit. Once you have selected, the bank will offer you the interest rate based on the amount you invested, and when the deposit tenure ends, you will earn a good amount of interest.
  • Interest income is any money you earn on your investments. The interest income is added to the principal amount after a specific time interval. It leads to an increase in your invested money.
  • You can either choose to receive the interest at the time of maturity or you can choose to receive it on a monthly, quarterly, half-yearly, yearly payout basis. Please consult your financial advisor for more details about the interest rates and payment options.

Features of a Fixed Deposit :

Fixed deposits are a popular choice among investors. They offer you a secure way to store your money and generate high returns. However, it is important to understand the features that underpin this investment product before making an investment.

1. One Time Deposit Investment

2. High Rate of Interest

3. Flexible Tenure

4. Renewal Option

5. Premature Withdrawal

Understanding FD Interest Rates 

Fixed deposit interest rates as a general rule range from 1-2%. This is the rate at which you can safely invest money in the FD account with a bank. It is important that you know the basic differences between various banks before making a decision to open an FD account.

A = P (1 + r/4/100) ^ (4*n) or A = P (1 + r/25)4n

Here, A stands for the amount on maturity,  P stands for the amount deposited, and n stands for the frequency of compounded interest

A=P+ (1+R/N/100)