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Full Form of FD: Fixed Deposit

Full Form of FD: Fixed Deposit

Fixed Deposit (FD)

Fixed Deposit (FD) is a type of interest-earning investment offered by banks. It is a transaction between the bank and the investor. An FD is a deposit held by a bank or other financial institution for a fixed period of time. An FD offers higher interest than a regular savings account, but imposes conditions on the amount frequency and/or duration of withdrawals.

You can withdraw your fixed deposit at once, but if you withdraw your fixed deposit before the deadline, the bank will charge you some percentage fee.

But the bank allows you to make fixed deposits for at least 7 days and up to a maximum of 10 years.

You make a fixed deposit (FD) of 5 lakhs for 5 years and you get an interest of Rs. 10,000 of which every year.

Benefits of Fixed Deposit

Fixed Deposit is a savings that is offered by the bank. Following are the main benefits of FD

  • FDs have low risk. Also offers higher interest rates than a savings account due to lower liquidity than deposits
  • You can make  investment in a FD for a short or long
  • FDs are not dependent on market fluctuations. The interest rates are pre-fixed so there is no need to worry about the returns.
  • If you re-invest the interest generated, the total income will increase with that interest.
  • Banks allow you to take emergency loans up to 80-90 percent of the total amount against FD documents, even if you have deposited money for a fixed period.

How FD is Calculated

FD interest calculated using the following formula 

        A = P(1 + rn)n * t

The full form of the variables in the formula 

A: Maturity interest

P: Principal amount

R: Rate of interest

n: Compound interest frequency

t: Duration

Things to know before opening FD account

A few things need to be understood before opening an FD which are given below

  • It is advisable to compare the interest rates of the bank with the increased interest rate.
  • Check the safety and reliability of the lending institution.
  • Choose a bank with excellent customer service.

5 Types of Fixed Deposits

All banks offer different types of deposits depending on their plans. Banks offer the deposits depending on their interest rate, principal amount, tenure, tax or other features. Following are the features of 5 deposits 

1.Cumulative/Compound Interest FD:

The interest earned from the cumulative fixed deposit is reinvested in the FD account. At the end of the agreement, the amount is returned with compound interest and principal amount.

2.Corporate FD:

Investing in corporate FDs is a risky element. However, the interest rate will be higher than other banks.

3.FDs for Non-Resident Indians (NRIs):

NRIs can apply for non-resident external (NRE) and non-resident ordinary (NRO) Fixed deposits. Banks allow you to invest the amount in foreign currency. NRE Fixed deposits are tax free, but NRO FDs attract 30% tax.

4.Floating FD:

The rate of interest applicable to the total amount of floating fixed deposits is equal to the prevailing rate of interest. Interest rates are regulated by the Reserve Bank of India (RBI).

5.Flexi FD:

 Flexi fixed deposit is linked with a savings account. This deposit helps the bank to automatically liquidate and transfer funds between FD and savings account. It helps in maintaining a minimum balance between FD and savings bank account.

 

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