A Fixed Deposit (FD) is a financial instrument offered by banks and financial institutions that allows individuals to deposit a lump sum of money for a fixed period of time at a predetermined interest rate. Fixed Deposits are also known as Time Deposits or Term Deposits. They are a popular investment option for those seeking safety, capital preservation, and predictable returns.
Here are the key features of Fixed Deposits:
- Term and Tenure: Fixed Deposits have a fixed term or tenure, which can range from a few months to several years. The depositor chooses the tenure at the time of deposit, and the money is locked in for that duration.
- Interest Rate: The interest rate on Fixed Deposits is fixed at the time of opening the deposit and remains constant throughout the tenure. It is usually higher than the interest rates offered on regular savings accounts.
- Interest Payment: Interest can be paid out periodically (e.g., monthly, quarterly) or at the end of the deposit term. Some banks also offer the option of reinvesting the interest earned back into the FD, compounding it over time.
- Liquidity: Fixed Deposits are generally considered less liquid compared to savings accounts. While some banks may allow premature withdrawal, it often comes with penalties or reduced interest rates.
- Safety: Fixed Deposits are considered relatively safe investments because they are typically insured up to a certain amount by deposit insurance schemes provided by the government. In many countries, deposits are insured up to a specified limit per account holder per bank.