Articles

Know The Difference Between Fixed Deposits And Term Deposits

by Shashank Bhaskar Finance Adviser

Term Deposit, also known as Fixed Deposits, is an investment made for a pre-arranged period by keeping a certain sum of money in a financial institution. This investment is maintained throughout the scheme for a fixed interest rate, which usually varies from a month to five years.

It is a standard investment mode, as its prices are significantly impervious to fluctuations in the market. An investor can receive the accumulated returns at the end of the tenure; any premature withdrawal is subject to fees levied by the concerned institution. If the investor wishes to collect interest earnings before maturity, they may opt for a plan that provides the interest at weekly, monthly, quarterly or annual intervals. Fixed deposit can be made available by financial institutions such as banks, Non-Banking Financial Companies (NBFCs), credit unions, and building societies.

Features of Term Deposits

  • Safety: Its resistance to the evolving economy makes it a highly lucrative risk-averse investment option.
  • Fixed-rate of interest: The interest rates for term deposits remain stable and are not subject to fluctuations in the market before the maturity date. FD plans that offer the highest interest rate should be considered.
  • Predetermined tenure: An investor will choose the term deposit plan tenure depending on the various schemes that the financial institution is offering. A higher interest rate usually follows a longer tenure. That does not automatically mean the longest tenure assures the full return. Before selecting a scheme, one must compare the interest-to-tenure ratios the organization is providing.
  • Interest payment frequency: An investor may choose to receive interest income on maturity or at regular intervals, i.e. monthly, quarterly or annually.
  • Growth: The returns received when the bank fixed deposit matures are fixed, thereby allowing investors to manage their finances over the lifetime of the scheme. The interest rates added to the deposit allow for steady growth in savings.
  • Rollover facility: If an investor does not want to use their returns immediately, they may opt for a roll-over term. This applies to reinvest the gains in a particular investment term upon maturity and adding to your interests.
  • Premature withdrawal: The bank FD comes with a predetermined duration of lock-in. In general, sudden withdrawal is paid with a penalty set by the financial institution along with lower interest income. For avoiding early exits, an investor is advised to pick a tenure consistent with their financial needs.
  • Loan against deposit: Instead of prematurely closing your deposit term, one may opt to take advantage of a loan up to 60-75 per cent of the deposit amount. A loan will have a rate of interest higher than the interest rate on the term deposit.

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About Shashank Bhaskar Innovator   Finance Adviser

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Joined APSense since, August 9th, 2018, From Mumbai, India.

Created on Oct 7th 2020 15:03. Viewed 199 times.

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