Opening a Fixed Deposit (FD) account is simple and the best risk-free investment. Many investors prefer to invest in an FD because this investment does not need extensive analysis, and the invested capital grows at a decent rate without the risk of incurring any losses. The minimum amount you need to open a Fixed Deposit account varies depending upon the internal terms of the banks or financial institutions offering the FDs. However, individuals can generally open a Fixed Deposit account with a minimum investment of Rs. 10,000.
Key aspects of a Fixed Deposit Investment
- Investors can open a Fixed Deposit investment for a minimum of 7 days to a maximum of 20 years.
- Fixed Deposits investments are risk-free and safe.
- An online Fixed Deposit calculator helps investors make the right decision for tenure.
- Investing in an FD is very simple and can be done online or by visiting the bank branch office.
- There are different types of Fixed Deposits that investors can select from depending on their investment objectives.
- The minimum FD amount you require is Rs.10,000. It is enough to start an FD investment with the bank.
Interest Rate on Fixed Deposits
The basic functioning of a Fixed Deposit is that investors lock in an amount for a tenure of their choice. This investment earns a fixed interest rate during the lock-in period, which the investor can withdraw at maturity along with their deposited principal investment. Investors can earn an interest rate ranging from 3.25% to 7.55% on their Fixed Deposit investments. The interest rate varies across banks and financial institutions. However, from the investor’s point of view, the rate of interest on a Fixed Deposit depends on its type and investment tenure.
Types of Fixed Deposits
While there are many different types of Fixed Deposits, these can broadly be classified under two heads – (i) Tax-Saving FDs and (ii) Non-Tax-Saving FDs.
- Tax-Saving FD: As the name suggests, the Tax-Saving FDs help investors claim tax benefits. These investments come with a fixed lock-in period of 5 years and earn interest during the entire tenure until maturity. And the investor can claim tax benefits up to Rs. 1,50,000 under section 80C. However, the crucial aspect of a Tax-Saving FD is that it can only be liquidated after the completion of 5 years.
- Non-Tax-Saving FDs: These are the regular Fixed Deposit investments that come with a tenure of choice and a fixed interest rate. These FDs allow premature withdrawals, but the investors may incur a penalty and earn lower returns upon doing so. Specific types of Non-Tax-Saving FDs, especially designed for senior citizens, may allow premature withdrawals without penalty.
Investors can invest in both, Tax-Saving and Non-Tax-Saving FDs with a minimal amount of Rs. 10,000. They can choose a bank or financial institution where interest rates on fixed deposits is higher amidst the current market rate interest.
Tenure of investment
The banks and financial institutions offer a wide range of lock-in tenures that investors can select depending on their financial objectives. Investors should analyse their financial positioning and future requirements before choosing a lock-in tenure. While investors can liquidate the Non-Tax-Saving Fixed Deposits anytime before maturity, it is not considered a good practice because of two reasons:
- A Fixed Deposit investment needs to run its entire course to generate the promised returns. Premature liquidation is less profitable when compared to the returns earned at maturity.
- An early withdrawal before the Fixed Deposit maturity can attract penalties depending upon the terms and conditions of the bank.
Selecting a lock-in tenure becomes even more important in the case of a Tax-Saving Fixed Deposit since it does not allow for premature withdrawals.
A Fixed Deposit investment is suitable for all types of investors and can be started with a minimal amount. Start with a minimum FD amount if you do not have a lump sum to invest, and it is a good option for those who like to test the waters before diving into it. While Fixed Deposit investments are considered one of the safest investment instruments, sceptical investors can understand it better by investing a small amount. Similarly, the minimum amount feature helps investors who do not have a large sum to invest but want their savings to earn better returns.