Why a fixed deposit account is good for you

Not too many bank customers have a fixed deposit account. As a matter of fact, many people only heard of the fixed deposit account when they were in the secondary school. Studies have shown that over 75 per cent of bank customers operate savings and current accounts, while only about 25 per cent do fixed deposit. To some, the 25 per cent is still a generous figure. This implies that so many bank customers are missing out on the benefits of fixed deposit accounts. This is because a fixed deposit account is more of an investment than just running a bank account.

To start with, a fixed deposit account is a financial instrument where an investor gives a certain sum of money to a bank or a financial institution and the entity pays interest for the duration of the deposit, according to www.bankbazaar.com.

A fixed deposit account is an account in which the money is deposited in the beginning of the period and interest is accrued on it, credited and redeemed after the completion of the said period, according to caknowledge.in.

It is similar to a savings account. It is a very simple account in which the account holder needs to only invests money one time and get returns for what the account has been opened for.

The rate of interest paid varies depending on the amount and tenure. Investors, especially conservative investors, prefer to open fixed deposit accounts, as it is a safe investment option and it can be opened easily and quickly.

• Encourages savings habit

Fixed deposit accounts require you to keep an amount for a certain period to accumulate the agreed interest amount. This encourages a savings habit by an individual, as he will not be tempted to spend the money and find a way to manage his finances more efficiently.

Higher rate of return

The interest rates offered on fixed deposits are higher than that on savings accounts. It is also a safe form of investment where returns are guaranteed.

• Guaranteed returns

Unlike investment in the stock market or commodity market, fixed deposits are not a risky investment as they do not depend on fluctuating market rates. Investors can rest assured that their investments are safe and they will be getting back a guaranteed amount at the end of the investment, according to www.bankbazaar.com.

• Easily withdrawable

The amount that is invested in a fixed deposit account can be withdrawn at any time for a small penalty. The investor may have a financial emergency to meet like marriages, illness or when his business is in a loss. The penalty is less than that of selling stocks or real estate as the asset cannot be sold easily because of its high value and if you are in a distressed situation, you will sell it for a much lower rate. Whereas, fixed deposits can be withdrawn at any time and all you lose is a certain interest income.

• Flexible in nature

Fixed deposit accounts can be taken for a tenure of one month, three months, six months, one year, two years or 10 years, based on your needs and for whatever amount that you can invest. Fixed deposits can be invested for a tenure of your choice. If you have planned for a big event in five years, then you can have a fixed deposit kept for five years to meet your financial requirements. You can have various fixed deposit accounts to save for different goals. Some banks provide flexible fixed deposit schemes.

• Flexible interest rate pay-outs

Interest can be paid at different intervals depending on the term you choose.

Disadvantages of fixed deposit accounts

Here are a few disadvantages of fixed deposit accounts, according to caknoeledge.in:

• The returns received from the fixed deposit account are very low as compared to the inflation rate of the country. As the prices of the products are increasing in the market, the inflation rate is also increasing, which does not support the increase in higher interest rates.
• In most countries, the taxation on fixed deposit accounts is done as normal taxation and no other benefits are allowed.
• The benefit of diversification is not available as all the money is invested in one account only, ruling out opportunity to invest in stock market or other instruments.