Complete Guide on Fixed Deposit (FD)

What is a Fixed Deposit?

A Fixed Deposit (FD) is an example of a financial instrument that is provided not only by banks but also by non-banking financial companies (NBFCs) and in accordance with it, you can deposit a lump sum of money for a decided period of time at a set interest rate. The major element of an FD is that it gives a guaranteed return on your investment, which is why it is more preferred by those investors who are conservative and looking for a safe and constant way to grow their savings.

How Does a Fixed Deposit Work?

One agrees to limit one's funds for a certain period when one buys a fixed deposit. Customers can decide how long this period will be. During a set period, rates stay fixed. They only start from the time a Fixed Deposit with the bank or NBFC is opened until the FD is closed. When that period is over, called maturity, you get the principle of the investment back to its face value and also the interest that the investment has generated so far.

For instance, if you put 1,00,000 rupees in an FD for 5 years with a 6% interest rate, here you will get the money of 1,00,000 rupees as the principal amount and, besides that, the interest that was at that time earned over the same 5 years. The interest at maturity can be paid either at regular intervals of time (monthly, quarterly, or annually) or when the FD is due.

Benefits of FDs

Fixed deposits are simply firm in their features, and that is why they are considered a good choice of investment. The following is a brief list of the advantages that a Fixed Deposit is known for:

1. Guaranteed Returns: FDs have very high fixed interest rates, which means you always know exactly how much you will make at the end of the bond maturity. This, in combination with the fact that there is no market risk, makes the FD a very safe investment.

2. Flexibility: You will have the flexibility of deciding problem-solving, as you have the right to select the term of the FD corresponding to the different finance aims of the whole spectrum of, say, 7 days up to, at the maximum, 10 years or even more if you really want to.

3. Tax Benefits: Certain FDs named Tax-Saving FDs are given several benefits in the form of tax reduction as per Section 80C of the Income Tax Act, 1961. Commonly, these FDs are the ones with a 5-year lock-in period.

4. Loan Facility: In the event of uncertainties, being a loan holder against your FD is the only savior you may think of. As a result, one can preserve his or her funds without any earlier and unnecessary breakage of the deposit.

5. Low Risk: FDs, which are considered one of the most secure investment options, are largely there to earn savings as the capital and interest are not influenced by the economic factors of the market.

6. Easy to Manage: After you invest in an FD, you can completely forget about it and put that money in your distant bank, which is an investment without much trouble.

Types of Fixed Deposits

Across the globe, Fixed Deposits are being seen in different forms compared to others, thus serving different possible uses and people's likes:

1. Standard Fixed Deposit: The most basic type of FD is this. Here you can deposit a certain amount of money to a bank for a specified period of time with a pre-decided interest rate. Interest is paid either periodically or at the end of the maturity period.

2. Tax-Saving Fixed Deposit: This FD has a minimum lock-in period of 5 years and provides tax benefits under Section 80C. But the interest earned is taxable.

3. Cumulative Fixed Deposit: The interest that is earned on this type of FD is added successively, and when the maturity period arrives, it is paid along with the principal. This choice is most appropriate for those that don't get monthly interest and would like to get the highest rates of return.

4. Non-Cumulative Fixed Deposit: By contrast with accumulative deposits, interest in the non-cumulative deposits is being paid out regularly (through time); months, quarters, and years. This is a type suitable for persons seeking a regular income.

5. Senior Citizen Fixed Deposit: A lot of banks offer their Senior Citizen Fixed Deposit customers higher interest rates on FDs as compared to the others, which are of the same tenure, thus making the scheme more favourable to this age group.

6. Flexi Fixed Deposit: This is a kind of fixed deposit and also is like a savings account. This deposit is special in the way that when necessary you can draw funds from your FD, but in the meantime, the rest of the money will keep getting interest calculated at the FD rate of interest.

How to Open a Fixed Deposit (FD) Account?

Opting to initiate the process to open an FD account is a simple process and can be done through a variety of methods:

1. Visiting the Nearest Bank Branch: You can approach the closest bank to the one where you want to open an FD account. Fill out the application form, provide the required documents, and deposit the funds. The bank will approach your request and grant the FD certificate that, in turn, will be the evidence of your invested amount.

2. Through Net Banking: People who are the bank's clients can open an FD account online through net banking. Log into your net banking account and choose the option to open an FD. Set the tenure and amount, and submit your request. The funds will be deducted from your savings account, and the FD will be created immediately.

3. Using the Mobile App: The majority of banks allow consumers to open an FD account through their Mobile Banking App. Developers just have to download the app on their phone and, after that, log in. It is not a complicated process; however, you should verify your credentials. Then, proceed to the FD section and follow the instructions to open a new FD account.

Who is Eligible for FD?

Liberality requirements for the opening of the Fixed Deposit account are as follows:

1. Individuals: Any person, including minors, can own an FD account. Ten to sixteen-year-old children have a right to operate an FD account under the authority of the bank, subjoined to the conditions and terms of the bank. In addition, a guardian (either a father or a mother) may open an FD account on behalf of a minor.

2. Joint Accounts: An FD account may be jointly opened by two or more individuals. The names of the joint account holders can be family members, friends, or business partners.

3. Clubs and Associations: Clubs, associations, and educational institutions that are registered with the bank can open fixed deposit accounts, the bank should satisfy that the savings are really made for a specific banker before issuing a freehold.

4. Companies and Partnerships: The Joint Stock Companies and Partnerships, if they are registered, are also entitled to open the fixed deposit account. The purpose of the account will be verified by the bank to ensure that it is indeed for savings purposes.

Documents Required for Fixed Deposit

To open a Fixed Deposit account, the applicant will need to process the Know Your Customer (KYC) procedure. It means preparing the required Officially Valid Documents (OVDs) and submitting them to the bank.

1. Passport: A valid passport is the cornerstone of not only an identification document but also a documentary residence certificate.

2. Driving Licence: An authentic driving license may be the nutrition transportation authority's official identification and residency letter.

3. Aadhaar Card: This document is the same as the Aadhaar Card, which is linked to the person's Aadhar number and is issued by the government for its e-governance activities.

4. Voter's Identity Card: It is proof of the city council, and in addition to the address, it is a proof of the right to vote.

5. NREGA Job Card: Along with instructions from the authorities, NREGA will take up the validation of the documentation of the job card. The source is contained in the National Rural Employment Guarantee Act 2005 (NREGA).

6. National Population Register Letter: A letter issued by the National Population Register regarding name and address can be used.

The specific documents to be submitted for the application of different types of accounts (individual or joint accounts, corporate accounts, etc.) may be different, bank if they need more documents.

Conclusion

In terms of safety and quality of investment, fixed deposits stand as one of the all-time winners throughout the years. These deposits provide assured returns, sufficient durations, and a variety of products that suit the interests of all clients. Such as, among different circumstances, you may start saving for some short-term objective or decide to save for retirement, and in both cases, having a Fixed Deposit might be a good addition to your financial strategy. By getting to know how FDs actually work, the facilities they provide, and the formalities essential to opening an FD account, you are empowered to choose the right path that leads to your financial objectives.