One of the well-known, safest and oldest investment options is Fixed Deposits. Even a person who doesn’t know anything about investment will be having an idea about Fixed Deposits. The key factor for fixed deposits being well-known is the low-risk factor along with decent returns on the investment. While most of the investment options are customised according to the investor’s risk appetite, goals, etc. the fixed deposits are the investment option that aligns with other investment products in a portfolio.
How do Fixed Deposits work?
Usually, while investing it is always suggested to diversify the investments to avoid risk. While diversifying the investment amount, most of the investors have fixed deposits in the portfolio.
The working of the fixed deposits is simple. It is an account type provided by the banks and offers interest for keeping the funds for a particular time.
A fixed deposit account is similar to other bank accounts like savings or current accounts where the account holder can deposit money in the account. But unlike savings or current accounts, the account holder cannot withdraw funds whenever he wants. When an investor invests in a fixed deposit account, the funds in the account are held for a specific time be it from 2 weeks to 10 years or more. The account holder/ depositor cannot withdraw funds till the end of the term. However, some banks offer premature withdrawal facilities but offer lower interest rates than expected and also can charge a fee for the same. The interest rate on the fixed deposit account is paid monthly or quarterly or at the time of maturity to the depositor.
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Fixed Deposits – The Safest Investment Option
Fixed Deposits – This traditional investment method comes with good benefits also considered the safest investment option because,
Risk-Free
Fixed deposits are less volatile compared to other investment options like stocks, real estate, etc. With a less volatile nature, an investor can expect a guaranteed return on the investment.
Being a risk-free option, it is considered by most of the investors who are close to retirement or in the retirement phase. Not just that, as already mentioned, while diversifying investments, most of the investors have fixed deposits in their investment kitty due to its low risk, stability and security. Added with other high or moderate risk investments, this will be the safest option in the investment portfolio.
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Secure
Most investors opt for fixed deposits at banks and banks are considered the safest place to save your money. Irrespective of the turmoil that happens in the banking sector, your money is safe and secure. But the investor needs to ensure to pick a bank that is high-valued and under the recognition of the central bank of the country.
Flexible Tenure
Banks or financial institutions that offer fixed deposits provide flexible tenure that can be aligned according to your investment goal. Fixed deposits come with different tenures starting with 2 weeks to 10 years and can also be more than that. You can deposit any amount for a specific time according to your goal. One more benefit is that you can withdraw the funds whenever you want to. However, there are certain limitations like low interest, additional fee, if you are withdrawing funds before the end of the tenure.
The interest or profit rate on the fixed deposits are also provided monthly, quarterly, annually or at the end of the tenure.
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Can use as Collateral
Fixed deposits can be helpful during the time of financial crunch. You don’t have to break your deposits instead you can use the fixed deposits certificate as collateral and get a secured loan. This way you will not just resolve your financial issue by not disturbing your investment and the interest-earning on it.
Overall the process of Fixed Deposits is very simple and easy. If you are looking for an investment option that has low-risk, flexible tenure with good security and decent returns then fixed deposits can be the best option.
About the author
Nikitha is a Senior Analyst at MyMoneySouq.com. She has been writing about personal finance, credit cards, mortgage, and other personal finance products in the UAE. Her work on Mortgage loans has been featured by the GulfNews and other popular Financial Blogs in the UAE.
