What are Fixed Deposits?

Putting your money in the banks for specified periods is also a form of investment, as it brings in returns in the form interests. These returns may be small compared to some of the other options, the risk element is little.

Deposits accepted by banks for a specified period of time are called time deposits. The minimum period for which term deposits can be accepted is 15 days according to the terms of RBI directives. The banks generally do not accept deposits for periods longer than 10 years.

Important Things to Look for in a Fixed Deposit

1. Interest on term deposits is paid by a bank based on the period of deposit. The bank normally pays higher interest for longer term deposits.

2. As the interest rates vary from time to time depending on market conditions, and banks have full discretion to fix their interest rates on deposits.

3. The changes made in the interest rates from time to time by a bank do not alter the interest paid on the existing deposits.

4. Interest payments are made on a quarterly basis even when the banks quote a certain percentage of interest per annum for a given period of time.

5. The depositor can either collect interest on every quarter or its discounted value at monthly rests or avail quarterly compounding benefits. He can also avail quarterly compounding benefits and receive the principal amount plus interest on maturity.

6. RBI has now allowed banks to quote higher rates of interest for individuals who deposit more than Rs.15 lacs.

7. For premature encashment of deposits from a bank, the bank is at their discretion to levy a penalty to the depositor. Banks generally pay interest to the depositor for the period which deposit has been kept with the bank and penalty can be charged for premature encashment.

8. On demand, against the fixed deposits, bank can allow loans. The bank can decide on the margin retained over the deposit outstanding and interest rate charged. This may vary from bank to bank.

On uncertain times of money markets, people tend to invest their money in term deposits to avoid further losses. In short, fixed deposits are only recommended if you are not interested in any other types of investment.