Fixed deposits help you create wealth, but the trick lies in investing a large amount of money for a longer term.
For decades now, Indians have reposed their faith in bank fixed deposits. The fixed deposit is a type of investment wherein one deposits a certain sum of money with the bank, for a particular period of time and earns interest on the sum once the term of the deposit ends.
FDs have always been a popular investment option in the country, especially among conservative investors, senior citizens and new investors. They help create a sound financial corpus for the future.
Understanding FDs and how they help
The biggest benefit of the FD is its predictability. You can be certain of the growth of the investment even before you create it, because all factors in the proposition: principal, interest rate and tenure, remain unchanged.
- More to the point, the rate of interest offered on the fixed deposit is uniform throughout the tenure. For instance, if the bank offers 8% interest on the deposit, then the interest rate will remain the same till the deposit matures, even if the bank drops the rate for subsequent deposits.
- The longer you stay invested in the FD, the more it earns by way of interest.
- You can transfer your savings account money to the fixed deposit account for higher returns. The bank pays a quarterly interest on the savings account deposit, normally in the range of 4% to 6%. However, the FD rate is higher, so the appreciation on the same amount of money is higher as well.
- You can use an online FD rate calculator to find out the projected increase in the investment at maturity. The calculator computes the principal and appreciation vis-à-vis the interest rate and tenure.
- You have the freedom to choose the tenure of the FD. This is an important benefit, which helps you time the deposit maturity to coincide with upcoming milestones.
- Senior citizen fixed deposits earn 0.5% interest more than other FDs. Thus, you can consider opening a deposit in your parent’s name (they must be aged over 60 years) to avail of higher capital appreciation.
- You can consider creating different fixed deposits for varying tenures, to realise short- and long-term goals. For this, you may split a large lump sum into smaller parts, to avail of differential interest rates and also fulfil different goals.
- Thus, it is clear that if you must choose to lock your money in fixed deposits, it is more prudent to invest a large sum of money to get good returns on it. Choose a bank that offers a higher rate of interest, and which allows online application and quick processing.