Fixed Deposit Must Read

What is a fixed deposit?
A fixed deposit is an investment account comprising a single deposit, for a fixed term at a guaranteed fixed rate of interest. It can be used for both short and long term investment purposes. A fixed deposit account allows you to deposit your money for a set period of time, thereby earning you a higher rate of interest in return. Fixed deposits also give you a higher rate of interest than a savings bank account.
Why Fixed Deposit
Fixed deposit is one of the oldest & most common methods of Investing. FDs look great because you get a decent risk-adjusted return and your principal is protected. Fixed deposits help you to secure your hard earned money for a long duration. Fixed deposit is a financial instrument for you to deposit your money for a fixed duration ranging from 15 days to 5 years.
However you need to remember that FDs are safe only as long as they are parked in large bank. Now a day, the banks & financial market is becoming very competitive.
You need to check up on the different types of FDs scheme available before making any fixed deposit investments. Banks offer various types of fixed deposits in India to their customers. Some banks offer a fixed deposit schemes which offer more savings & over draft facility.
A regular fixed deposit can earn you an interest up to 8.75% and senior citizens who opt for such a fixed deposit scheme are eligible for an additional 0.5 % increase.
What are the Benefits of Fixed deposits
With fixed deposits or FDs as they are popularly known, a person can invest an amount for a fixed duration. The banks provide interest rates depending on this loan amount and the tenure of deposit.
1) The option to withdraw the deposit at any time before maturity without any difficulty 
2) Fixed deposit is secure form of investment that means your money would be 100% safe.
3)You can avail loans up to 85% of the principal 
4)Variable deposit periods ranging from 6 months to 120 months 
5)You get interest once in 6 months 
 A minimum opening deposit of R1000.00 is required. Deposit can be made in multiples of Rs.100/-
You can choose how frequently you want to receive your interest payments:

  • Maturity
  • Yearly
  • Half-yearly
  • Quarterly
  • Monthly

The banks may not always tell you the full story. Therefore it is important for us to delve deep into any Fixed deposit Rate of interest and make the right choice.

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1). Safety:
FDs have conventionally been the premier choice for investors with a low risk appetite; assured returns is the key factor which attracts investors towards deposits. Stick to FDs of the highest credit rating i.e. those with a “AAA” rating even if their rates seem modest vis-à-vis those offered by company deposits. The fixed deposits of reputed banks and financial institutions regulated by RBI (Reserve Bank of India) the banking regulator in India is very secure and considered as one of the safest investment methods.
2.) Regular Income:
Fixed deposits earn fixed interest rates for their entire tenure, which is usually compounded quarterly. So, those who want an income on a regular basis can invest into fixed deposits and use the interest rate as their income. This makes a fixed deposit very popular way of investing money for retirees
3) Saves Tax:
With the directives of the income tax department stating that investment in fixed deposits up to a maximum of Rs.100, 000 for 5 years are eligible for tax deductions under section 80 C of income tax act; fixed deposits have again become popular. Fixed deposits save tax and give high returns on invested money
4) Liquidity:
Find out how your FD fares on the pre-mature encashment front i.e. how easily can your investment be liquidated. Also enquire about the penalty clauses, e.g. do you suffer a loss of interest and/or principal amount. Compare how various fixed deposits rank on this parameter and pick the best deal; thereby try to minimize the impact of illiquidity which is typically associated with fixed deposits.
What all Precautions one should take while making such investments?
1) Company Fixed Deposits:
Company fixed deposits are not considered as safe as fixed deposits from leading banks and financial institutions regulated by the RBI. So, if a company runs into losses or goes bankrupt the money invested into its fixed deposit can be lost. To lure investors, such companies offer a fixed deposit interest rate which is much higher than those offered by banks. Before investing in any company fixed deposit it is advised to check the credentials of the company

2) Premature ending of Fixed Deposits:
Banks will impose a penalty if you break your fixed deposit before the maturity period. Make sure you get the facts right about this thing. How the bank calculates this penalty and what’ll charge will it levy when you break a fixed deposit should be noted carefully.
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