Fixed deposit, a term which our seniors have tried their hardest to acquaint you with! But in the era of supercomputing and complicated financial instruments, which make it seem like fantastic riches are almost within grasp, and there is no actual way to lose money, there still exists the good old fixed deposit with its humble rate of interest. So, why should we look at something old fashioned and apparently not as profitable as others? Reliability is one major factor. Fixed deposits do not behave in the same unreliable manner in which other instruments work. They are more or less secure and this makes them a very reliable choice. Another major reason is that of an assured pay-out. In a fixed deposit you know the interest rates and the expected outcome right when you make the investment. This gives you a peace of mind which is very rare in the financial business.
So, what exactly is a fixed deposit in the first place? It is a kind of financial instrument in which you can invest your funds for a set tenure which will then provide you with a rate of interest in return. The benefit is that it is as simple as opening a savings account and equally risk free but with a higher rate of interest. Now, there are two types of fixed deposits available to the investor.
- Traditional / Non-cumulative plans
These are the traditional plans you know about. In this case, the principal gets invested for a specific duration and the frequency of the interest pay-out is one which is determined by you.
2. Reinvestment / Cumulative plans
As the title suggests the interest in this plan is added to the principal and compounded; the sum total of which is handed out during maturity.
Now what are the things you should keep in mind before making a fixed deposit?
- Try Opting for company FDs
Fixed deposits offered by companies have a higher rate of return and usually have more flexible tenures compared to that offered by banks.
- Choose your tenure carefully
To avoid the monetary penalty most fixed deposits levy on you if a premature withdrawal is made, make sure that you choose your tenure very carefully
- Compare different banks
Remember to compare different banks offering different interest rates and options before you make your choice, as an intelligent investor always looks at all his options before making a decision.
- Split your money
There is a small but a sometimes useful benefit of splitting your money across different banks and different fixed deposits. If you may need to liquidate one of your deposits for an inconceivable reason, then you also have to make sure that there is a deposit you can liquidate immediately without incurring any significant penalties.
So don’t forget to check out the meek and silent fixed deposit before you decide to go through with an investment. But remember no investment is infallible and the same is with fixed deposits.