While your Savings Deposit account allows you to withdraw money as and when required, a fixed deposit account helps to inculcate a greater savings habit by locking the amount for a longer period of time. The amount can be withdrawn after the said period, usually called the Maturity Date, with a very high amount of fixed deposit interest rates. Also known as term deposit, a fixed deposit account is extremely popular among the middle and high income group of people, who usually use the lump sum amount received on maturity for heavy investment causes such a higher education for children, marriage, old age necessities, etc. The fixed deposits guarantee assured rates of return even when the market is volatile. The tenure may vary from 7, 15, 45 days but the usual lock in period is 5-10 years. The rate of interest provided on fixed deposits usually varies from bank to bank. These fixed deposit rates however are subjected to market change.
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The most traditional and common way of savings is Fixed deposits. A person is eligible for premature withdrawal, where he can withdraw his fixed deposit before the said term, in case an emergency arises and he is in need of money. However, in that case the bank charges a penalty and the rate of interest payable to the account holder will be the rate applicable at the time of withdrawal. Senior citizens always prefer fixed deposits as they get a higher rate of interest and a security of not losing their savings.
The customer is eligible for a tax deduction in case his interest earned on the fixed deposit is less than Rs. 10000; otherwise if the amount is more than Rs. 10000, he has to pay tax on it. Customers are also eligible to take loans on their Fixed Deposit certificates, without any hassle. One’s fixed deposit is always protected in case the bank under any circumstances fails to provide the money to them.
Advantages of Fixed Deposits
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- This is the most common method and involves very low risk as you get guaranteed return once your fixed amount gets matured.
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- A fixed deposit is better than a savings account as the fixed deposit return rates are comparatively higher. As a result the amount received at the end of the tenure will be higher.
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- Fixed deposits can’t be accessed anytime as it is fixed for a tenure. However, if you need money urgently fixed deposit can be of help. But in that case you might be charged or some of your maturity amount be deducted.
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- Fixed deposits can help you deal with money easily. This shall prevent you from taking loan at the time of crisis.
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- Another advantage of fixed deposit is that you can deposit any amount as per your choice and then fix it for a minimum of 7 days to 1o years. This helps a person to plan accordingly for the future.
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- It is very important to save money for the future. If you want to start up the habit of saving then fixed deposit can help you do so. But to receive the full maturity amount, one must not withdraw the money before the tenure ends.