Fixed Deposit – What is?, Features, Advantages, Disadvantages
My this article is about the features, advantages, disadvantages, meaning of fixed deposit account, interest rates at which it is available, what would be the benefits of it, how it is different from savings account, duration for which fixed deposit can be issued, eligibility to open a fixed deposit account. However there may be different rules for opening deposit account in different banks. The whole explanation and answer to the above questions has been given in these article.
What is fixed deposit account ??
A fixed deposit account is a account in which the money is deposited in the beginning of the period and interest is accrued on it and credited and redeemed after the completion of the said period. It is similar to that of savings account. It is a very simple account in which account holder needs to only invests money one time and get returns for what the account has been opened for. The interest accrued is credited to that account and the interest on interest is also provided which is known as compounding of interest. At the end of the period of deposit, the investor or the account holder is returned the amount and the additional interest earned during the year is given back to such person
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Features of Fixed deposit account:
- 1. It makes the account holder to save money for the future transactions and not waste by withdrawing cash for unnecessary transactions.
- 2. This type of account assures the return that would be accrued to them at the end of each period.
- 3. It provides higher rate of interest than the savings account.
- 4. Interest accrued to them on this account would be given at the maturity of the period, so at a time of maturity Hugh amount will be accrued.
- 5. This type of account meets the future cash flows of he individual.
- 6. Can get more than 1 fixed deposit account.
- 7. The term period for which the fixed account can be kept is between 6 months to 10 years.
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Advantages of Fixed deposit account:
- It takes into consideration the compounding of interest through which the interest on interest would also get accrued and would be provided to the individual on the date of maturity.
- The person requiring loans can also give fixed deposit account as security to the bank.
- Fixed deposit account is highly liquid. You can get back the money whenever they want. Might be bank can cut some money for withdrawing back without maturity period..
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Disadvantages of Fixed deposit account:
- The returns received from the FD account are very low as compared to inflation rate of the country. As day by day the prices of the products are increasing in the market that inflation rate is also increasing which do not support the increase in the higher interest rates.
- The taxation of the fixed deposit accounts are done as normal taxation and no other benefits are allowed, in controversy to it, interest received in the savings bank account is exempt under section 80TTA of the income tax Act.
- The benefit of the diversifications not available as they have invest all money in 1 account only, which is a major benefit while investing in stock market or other instruments.
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