Fixed deposits (FD) are a type of financial tool that helps you save while earning more than a regular savings account. A rate of interest is guaranteed for a fixed period of time from one month up to five years. Before selecting an FD, it is recommended to research FD rates from different banks.
To get the higher interest rate, you need to leave your money in the FD for the selected time. The longer FD you choose, the higher the interest rate will be. This is the way the bank encourages you to invest for longer periods. The difference in interest can be from 0.15 per cent to 0.4 per cent. This may seem like a small amount, but with a substantial investment it can amount to a significant sum.
Normally, you cannot withdraw money from the FD until the investment has reached maturity, which means the time limit you selected, without forfeiting the interest. Because of this, it is essential that you only invest in FD the amount of money you can afford to be without for that time period.
Even though FDs are fixed, there is a little flexibility. Some banks will allow you to withdraw a portion of the investment before the time is up without giving up your interest. To do this, you need to select this option at the time of investing. The options are:
• You can access some of your money without closing the account
• You can access some of your money before the account is mature
• You continue to earn interest on the balance of your account
• You may get some interest on the portion of the money you withdraw early
Many banks will give you 50 per cent of your interest if the account is at least three months old. Each bank will have its own terms and conditions for FDs.
Your FD can be automatically renewed when it matures. This means the principal and interest earned go into another FD for the same time period. Your other option is to cash out the FD and take your principal as well as your interest. The bank will notify you in writing when the FD is about to mature if you haven’t given prior instructions to automatically renew it.
If you have a five year FD, you’ll have to wait another five years to get full benefit. If this isn’t useful for you, it’s better to cash out at maturity and reinvest.