Fixed Deposit What All Does It Offer?
Fixed deposits are traditionally known as low-risk and high-reward investment products. Banks and financial institutions invest these funds into debt instruments across the market and in return offer you an amount over the investment in the form of interest. This simplicity makes this one of the easiest financial products to pick from the bouquet of financial services offered by organizations.
But what else does a fixed deposit account have to offer? This financial product offers interest amounts at a pre-determined interest rate which differs between organizations. Within every organization, there are also several products based on time frames and the age group. Senior citizens get to deposit their funds, for example, at a higher interest rate than younger people. While organizations do allow you to invest in FDs for as short a period as 7 days, standard FDs offer great interest rates for anyone who invest for more than a year or so. With the right time frame, this product will offer higher interest rates as compared to other financial tools like a savings account. While the interest received is taxable, it offers an opportunity to earn more without having to deal with financial risks involved with investing in the stock market, mutual funds, commodities, etc.
FDs have higher liquidity than other financial investments. Any other investment, if withdrawn prematurely, could result in significant losses. These deposits, on the other hand, are much more flexible. The bank or financial organization will pay all due interest to the investor. There is a glitch to this, though. You may need to pay a penalty for making a premature withdrawal, although in most cases, the amount is minor. There are also organizations that have no applicable penalty on premature withdrawals, allowing you to protect your investment entirely in spite of premature or partial withdrawals. Most organizations offer overdraft or loan facility on these deposits as well. This basically means that you can take a loan against that investment. Most organizations offer up to 90 percent of the principal amount in loan.
The best part of the fixed deposit schemes is the fact that they are customizable. You can select the time frame as well as the interest processing that you are comfortable with. In other words, you can receive interest on monthly, quarterly or annual basis. You can also re-invest the interest to earn compounding interest on both the principal and the interest amount. It should be noted, though, that this reinvestment option is available in select organizations only. With the right strategy, this investment could be used to pay off certain monthly expenses or make strategic re-investments of your own.
So, as a financial tool, a fixed deposit is both safe and rewarding. Within every diversified portfolio, it is advisable to invest in some of these accounts strategically and keep them as low-risk tools. This in turn will help safeguard investors against the market vulnerabilities.
