Fixed deposit – Meaning and features

Meaning of fixed deposit:

A fixed deposit (FD) is deposit with banks or some other financial institution for a predefined time period. An investor has to deposit such a fixed amount of money (ranging from thousands to lakhs) at the time of creating FD. The interest rate levied upon fixed deposits is higher than interest on saving accounts. An investor has the option to choose the tenure of FD ranging from 7 days to 10 years. The longer tenure of FD attracts a higher rate of interest than a shorter one.

Fixed deposit is also known as term deposit in countries like Australia, time deposit in countries like United States and bond in countries like United Kingdom.

Features of fixed deposit:

1) FD is safer investment option in terms of market risk.

2) Return on FD is predefined irrespective of market fluctuations.

3) Fixed deposits provide higher rate of interest than a normal saving account.

4) FD provides an investor the flexibility to break it prematurely (Subject to some penalties).

5) The interest levied on FD is tax free up to a limit.

6) In India, most of the banks provide a credit card or loan against FD.