How fixed deposits work
Term deposits are one of the most common forms of investment. It's considered safe and has a good money-back guarantee for a period of time, preferably long-term. Yields are fixed regardless of market volatility. It also earns extra interest if you invest the term deposit for a longer period of time.
Term deposits are investments that banks and non-financial companies offer to their customers. Term deposits provide interest on your capital. Interest rates vary across financial institutions and are much higher compared to savings accounts.
The duration varies from short-term to long-term. The short term may be 7-14 days, and the long term may be ten years or longer. Unlike banks, term deposits have recently been simplified and can be managed directly by a single person over the phone or computer.
How Does This Work
You may be wondering where the money went after you deposited it. The bank or financial institution guarantees that after a common deadline, you will get your money back with interest. Money is lent to borrowers, and merchants are charged interest. The bank shares some of the interest with you.
The interest rate offered depends on your deposit period. An FD of a year or more is much more than a FD of a week or a month. The interest you receive is compensation for the time risk you take. The longer the investment horizon, the better. Market inflation will push prices higher and higher. Depending on your choice, your interest can be deposited into your bank account or reinvested.
- Cumulative Fixed Deposit CFDs offer interest and principal at maturity, which means you may not receive regular or monthly interest payments, but a one-time payment. With this option, the benefits of compounding may work in your favor. If you need a steady stream of income, CFDs may not be for you.
- Non-cumulative Term Deposits - On the other hand, NCFD earns you interest at regular intervals. You can choose to be paid monthly, quarterly, semi-annually or annually. The downside of this investment is that you lose the compounding effect.
Types of time deposits
Corporate Time Deposit
Businesses and corporations also offer term deposits. Unlike banks and NBFTCs, which have bancassurance, giving them the ability to get their money back in the event of losses, corporate time deposits are insured in the event of losses.
Flexible Fixed Deposit
This is where the bank gives you the liquidity advantage. Your fixed deposit account is linked to your savings account. Any amount over the pre-determined balance will be credited directly to your account via the Auto Sweep feature.
Foreign Time Deposits
Some countries offer foreign time deposits. Non-resident foreign or non-resident general is the main account of foreigners.
Standard Time Deposit
Using these investment models, you can invest an amount of money at a predetermined interest rate over a long period of time. The investment period can be between 7 days and 10 years.
Offers a fixed monthly or quarterly investment for a specific term. During this period, you will receive your interest and principal.
Tax Saving FD
There is a special tax savings account that deducts all your tax expenses.