Fixed deposit or FDs is a very safe and secure investment option that allows you to invest your money for a specific time span and at a fixed rate of interest. During the tenure of your FD even of the rate of interest of the FDs go up or down, you will; have it pay to same rate of interest that was decided during your initial investment procedure.
The Fixed deposit accounts pay a higher rate of interest than the savings bank account. All the other conditions are equal; you would definitely be in a much better position if you put your money into an FD account instead of a savings bank account. The interest can be paid to your quarterly or half yearly or annually. If in case you are a senior citizen the rate of interest on your FD might even go up.
There are two kinds of FDs-
Bank and Non-banking financial institutions FD – This kind of Fixed deposits are offered by banks and non-banking finance companies the RB regulates th4ese institutions.
Corporate FDs – These are offered by the companies that are in the hunt to raise money from the open market. Corporate FDs give you a higher rate of interest but at the same time it also has a higher risk quotient when compared to the bank FDs.
Here are the Pros –
FDs give a safe return – FDs are more than secure and very low-risk investments, bank FDs are guaranteed up to Rs 1 Lakh by the deposit insurance and the credit guarantee corporation.
You can take a loan against your FD –
You can borrow up to 85% of the FD amount in some banks this can happen only after a few months of the existence of your FD however this is valid only for Bank Fds and not the NBFC FDs or the Corporate FDs.
Low maintain –
Unlike other investments like stocks, mutual funds or real estate, you do not have to keep an eye on your FDs daily or monthly or undertake any kind of risks or maintenance work.
Here are some of the cons-
Low Returns –
The FDs are very low-risk investments and hence even though the returns are guaranteed they are on the lower side especially when compared to the other investment options like stocks, shares and real estate.
Lock ups –
once you create an FD account and you deposit your amount in your account for the decided tenure, you cannot withdraw the amount before the expiry of the tenure. If the e arises and you do have to withdraw each you have to pay the penalty for pre-withdrawals which would include a reduced interest rate and charges around 1% of the amount that we invested.