Many banks and non-banking finance companies in India offer fixed deposits as one of their investment products. In the long run, it is a product preferred by people who wish to protect their savings and increase their income through interest payments. To know what is fixed deposit plan, it should be consider that FD scheme offers the highest interest rate and the ability to customize your plans.
FDs can be customized according to their duration, cumulative or non-cumulative options, several duration options, goal-oriented FDs, etc. Then, you deposit a fixed amount for a predefined period, and the bank pays you interest on that amount. Fixed deposits earn a predetermined interest rate over a set period. The interest rate on fixed deposits is higher than that of the interest rate on a savings account.
Renewal of Fixed Deposit
It is possible to automatically renew or withdraw an FD when a deposit reaches maturity. An auto-renewal shall have the same period and interest rate as the existing one. The automatic renewal of the deposit should be determined by the need for funds shortly.
Withdrawal of Fixed Deposit
Automatic termination shuts down the FD upon maturity and transfers funds to a pre-selected savings account. In the case of the auto-termination option, the interest rate for reinvestments may be lower because of changes in the market during the tenure of the original FD. Therefore, making informed decisions when renewing your FD is important in ensuring you receive the greatest benefits. The FD can be withdrawn even before it matures, but some penalties may be associated with it.
Renew or Withdraw of an FD at maturity
An FD can be held from anywhere between seven days and ten years, and if the depositor chooses to keep it after it reaches maturity, they have the option of extending it for an additional five to ten years. Moreover, when you renew your fixed deposit, you agree to retain the full amount due at maturity on the deposit with the bank for a further period. Therefore, if you want to continue investing in your FD after it has reached maturity, you can do so easily.
You have two choices once the FD has reached its maturity age. In other words, you have the option of cashing it out and getting the initial investment and the interest that has accrued over time. The money that you initially put into the account is referred to as the principal amount. An additional advantage associated with FD renewal is the possibility of extending the term for another 5–10 years. With the fd investment calculator, you can determine how compounding will affect your FD if you decide to keep and renew it. Finally, there is the possibility of making early withdrawals and fixed deposits, but doing so will result in a penalty, typically taking the form of a lower interest rate. When you desire the money deposited in the FD before it matures, this is referred to as an early withdrawal.
Features of a Fixed Deposit
Before knowing what is fixed deposit scheme, it is very important to know its features
It guarantees you will receive a return on your fixed deposit. It is important to know that you will receive the same rate of return as agreed upon when you opened an FD. On the other hand, market-led investments offer returns based on market fluctuations. Therefore, despite the decline in interest rates, you will still be able to receive the same amount of interest that was agreed upon.
To choose the best FD interest rate, you must know in brief what is fixed deposit and decide the principal amount and the tenure you want. There is a tendency for interest rates to be higher for long-term fixed deposits and lower for short-term fixed deposits.
Flexible tenures and renewal
There are a variety of tenures for FDs, ranging from one week to ten years. When you open the FD, you can choose the term that is most convenient for you. When the FD matures, you can renew it, but remember to check the interest rates.
Return on investment
To know what is fixed deposit and what is its ROI, it is very important to know that it depends on the maturity period or tenure of the fixed deposit and how much interest you earn. You earn more interest with a longer tenure. A cumulative FD allows you to reinvest interest at regular intervals, or you can receive it periodically. By choosing this FD, you can take advantage of compound interest.
Loans against FDs
If you urgently need funds and have a fixed deposit, you can take out a loan against it. Your fixed deposit will not be closed prematurely if you apply for a loan against FD.