What is Fixed Deposit?
A fixed deposit is an investment instrument that helps inventors earn interest on their deposited funds, over a set period of time. This investment avenue offers guaranteed³ returns, and is typically considered a ‘safe investment’ as it is not market-linked. Investors with both long-term and short-term goals can turn to FDs to fulfil their needs over time. In fact, most FDs have a minimum term period of 7 days and a maximum period of 10 years.
While the minimum amount an investor can put in an FD is ₹5,000, the maximum amount varies from bank to bank. Some banks allow an investment of ₹1 lakh while others allow an investment of ₹1.5 lakhs.
It is important to note that an FD, like many other investment options, locks the investor’s funds for a specific period of time, for example 10 years. However, this does not mean that investors cannot withdraw their funds at the time of an emergency. This easy-liquidation is one of the most beneficial features of FDs¹.
The interest rate offered by FDs is fixed, and can vary from bank to bank. In general, the interest rate can vary from 2.7% - 7.15%.
Let’s understand more about FDs with the help of an example.
Rekha invests ₹1,00,000 in an FD for 5 years, and is offered an interest rate of 5.5% per annum. At the end of 5 years, she will have ₹1,31,407.