What Is a Fixed Deposit and How It Works?

by John Judge Writer

In India, it is a common practice for every parent to put money aside for their children and deposit it in a Fixed Deposit account. An FD account is something that guarantees assured returns and is one of the most risk-free tools for investment. Read on to know more!

As soon as you start working, the first thing that most people will say to you is to save money. You must have a certain amount in your bank that will help you when you need it. To make sure you save as much money as you can, you start looking for investment tools. The first thing that you will come across are different types of Fixed Deposit plans. This investment instrument is made for people who avoid taking risks when it comes to their money.

FD is a term that is short for Fixed Deposits, and it is one of the first ways where people start investing as soon as they start earning. If you are new to all of this and don't know what a FD is and how it works, then you have come to the right place! Make sure you read this whole article to get a gist of it all.

What is an FD?

An FD is one of the oldest financial investment methods where you can effortlessly park your savings as well as earn some interest on it at the same time. There are numerous banks, non-banking financial companies as well as post offices that give their customers the option to start their FD account. Depending on your preferences, like your total tenure preference, budget, and premium preference, you can choose the perfect plan for you.

There are a lot of other things that you need to keep in mind when it comes to opening your FD account. You must choose the best bank for FD. You can opt for a small finance bank as they offer better interest rates. Once you find out the highest FD rates in small finance bank, you can open the account with that bank. Small finance banks usually have a lot of offers and deals that you should definitely check out.

How does it work?

The whole financial talk can be a little confusing for beginners or new investors. That is why we are going to simplify the process as much as possible. If you are wondering how a FD works, then these are the steps that will help you get a little clarity on the topic-

The first thing that happens is you choose a plan based on your tenure preference and budget preference.
The next thing is you talk to the FD representative for all the details. They will make sure it is easy for you to understand.
Then you will be investing that money in your FD account. You are usually required to invest a lumpsum amount in your FD.
Once your FD matures, you can take out the money and even earn the interest with the amount you have invested.

These are a few things that will help you understand the process a little better.