When asked about the safest investment scheme in our country, most people mention Fixed Deposits (FDs) as the answer.
They are popular due to the fixed income they generate and the assurance of knowing how much return we will get at the time of investment. The government’s guarantee on these fixed deposits also attracts many investors.
Additionally, senior citizens are particularly interested in FDs due to the high interest rates they offer. As a result, FDs have become an essential part of financial planning for people in our country.
So, what exactly are fixed deposits? How did they become a safe choice? A fixed deposit, also known as an FD, is an investment scheme in which a lump sum is deposited in a bank for a fixed period. In return, the bank pays a fixed interest rate at the maturity of the deposit.
The interest rate offered on an FD depends on the investment period and the amount deposited. Generally, a longer tenure will yield a higher interest rate. The interest earned is credited to the investor’s account.
Fixed deposits are considered safe in India due to regulatory supervision and deposit insurance provided by the Credit Guarantee Corporation.
The Reserve Bank of India (RBI) ensures strict rules and conducts regular inspections to increase fixed deposit safety.
Deposit insurance schemes in India, managed by the DICGC, protect depositors in case of bank failure. The current limit is Rs. 5 lakhs per depositor per bank.
Before investing in an FD, it is advisable to research the bank’s financial stability and market reputation.
Fixed deposits offer predetermined interest rates, providing predictable and consistent returns, which makes them attractive to traditional investors seeking safety.
Interest rates on FDs vary between banks and financial institutions, so it is essential to calculate interest rates using a fixed deposit calculator to ensure maximum return on your investment.
FDs have a fixed tenure, and premature withdrawal may incur penalties, so it’s important to carefully assess your liquidity needs and choose a tenure that matches your financial goals.
While FDs offer security, they may not always be safe from inflation, which can lead to a decline in purchasing power over time. It’s important to consider inflation risk when planning your investment portfolio.
There are different types of fixed deposits in the market, including regular FDs, monthly recurring FDs, tax-saving FDs, senior citizen FDs, flexi FDs, and corporate FDs issued by non-banking institutions.
When investing in FDs offered by non-banking financial companies (NBFCs) or cooperative banks, caution is essential as they carry higher risks than conventional bank FDs.
It’s advisable to check the credit rating of the company offering the FD to assess the safety of your investment.