Fixed deposit (FD) is a low-risk investment option. It is particularly ideal for young investment beginners and others, whose incomes are not taxable. Fixed deposit gives steady returns at a fixed rate of interest.
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Benefits of Fixed Deposit Highlighted through Cartoon Animation
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Power of Compounding, Whiteboard Animation
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Invest a lump sum amount, for example, Rs. 10,000, for a specific period, such as for one-year, two-year or other, at the prevailing rate of interest, say 7%.
How do you make money from a fixed deposit (FD)? The money you deposit, known as the principal earns interest at the rate of interest at the time of opening your FD.
Let's consider an example: Say you invest Rs. 10,000, for one year, at 7% rate of interest, in an FD. Further, say that you opt to receive the interest amount when the FD matures. That is, at the end of the year. So, how much will you get at the end of the year? You will get Rs. 10,718.59.
You can open an FD account, generally in any bank. Some companies also accept FDs. However, you should check traits like the financial status and any past payment defaults of the company and, more importantly, the investment grade for the FD. You should invest only in companies that have a grade like FAAA, AAA or AA. These grades are given by rating agencies like CRISIL.
When does the bank pay you interest on your FD? You can choose to get your interest on a monthly or quarterly basis or when the FD matures.
Your FD amount or the principal earns more interest if you opt to
get the interest on a quarterly basis or when the FD matures. Thanks to the power of compounding of interest.
Ask the bank to credit the interest amount to your savings account in the same bank or another one, electronically. You can also request the interest to be paid by cheques.
