A fixed deposit is a financial instrument provided by the banks and other financial institutions. It is a type of term deposit that yields a fixed rate of interest until the maturity of the deposit. By investing in fixed deposits, one can save and earn money from it. The rate of interest for investors is comparatively higher in fixed deposit as compared to a regular saving account.
In FD, the account or the institution promises the investor a higher fixed rate of interest and in return, the investor agrees not to withdraw the invested funds before maturity.
Features of Fixed Deposit
- The return on the deposit is assured and remains unaffected by market conditions.
- The rate of interest is higher than any saving accounts.
- Fixed Deposits can be renewed without any problem.
- Investors cannot withdraw the deposited amount before the maturity period. In case of emergency, withdrawal may lead to penalty which is paid by the depositor.
Benefits of a Fixed Deposit
- Fixed deposit has assurity of return. FD has low risk of any types of defaults.
- Fixed deposit has a higher rate of return as compared to other saving account substitutes.
- Fixed deposit has flexible tenure i.e. there are multiple time period for FD
- There are provisions for tax exemption in some countries.
- Despite the penalty provision on withdrawal before maturity, FDs are liquid in nature.
- FD is also one of the saving instruments therefore, FD encourages saving habits.
- Investors can avail loans or overdrafts against fixed deposits whenever required.
IDFC bank talks about their fixed deposit
More here, Notes about Management by Objective (MBO)