What is a Fixed Deposit and Why Should You Consider It?

A fixed deposit (FD) is one of the well-known savings schemes available with banks and financial institutions. Individuals use this savings scheme to keep their capital with a financial institution for a predefined period. The fixed deposit scheme is popular among individuals because it gives a fixed interest rate on the deposited amount. 

However, it’s important for individuals to know that they cannot access the deposited capital until the FD tenure is completed. This article will educate you about what a fixed deposit is and why you should consider it.

What is Fixed Deposit?

To learn what is fixed deposit, first we need to understand its purpose. A fixed deposit is a kind of financial instrument. When you decide to invest your savings in a fixed deposit, you basically agree to save an amount over a predetermined period. This duration can vary from 7 days to 10 years. During this period the invested amount of capital will earn a predetermined rate of interest.

Fixed deposits often work on a simple principle. Here you deposit an amount that cannot be taken out until the chosen period. This predetermined duration is also known as the maturity period. At the end of the maturity period, the bank gives back the deposit along with the interest accumulated on the deposit throughout the maturity term.

Why Should You Consider It?

Here are some noteworthy reasons why you can consider fixed deposits for savings and accumulating wealth over time.

• Financial Discipline: Fixed deposits are perfect if you wish to save capital in a disciplined way. Generally, one cannot access the capital once it has been put into a fixed deposit account. When one cannot access the capital easily, it creates discipline in savings.

• To Earn Fixed Returns: If you are interested in creating a secure and steady source of accumulating funds over a specific amount of time, this financial instrument can be a helpful choice to meet the desired financial goal.

• For Safety of Savings: If you want to keep your money safe, fixed deposits can provide you with stable options. Fixed deposits allow the growth of savings without the risk of market fluctuation.

• Easy Setup: Opening a fixed deposit is a simple process. Nowadays, many banks and financial institutions facilitate the online opening of fixed deposit accounts. Which can eventually help in the easy setup of the FD account.

Points to Consider Before Opening a Fixed Deposit

Here are some important points that individuals need to consider when deciding to open a fixed deposit account.

• Compare the interest offered by various institutions.

• Choose a tenure that is suitable for your financial requirements.

• Some financial institutions may allow early withdrawal, so know the penalties for withdrawal before the maturity date.

Conclusion

Fixed deposits are an instrument that reliably facilitates planning and securing savings. They yield steady and predictable income while securing your principal. If you are planning for investment, online apps like PowerUp Money can help you with the guidance required regarding investing and wealth building. Moreover, whether you are considering achieving short-term goals or future needs, a fixed deposit investment can be a suitable choice.