- What is a Fixed Deposit?
- How Does FD Work?
- Importance of Investment
- Advantages of Investing in FD
Are you a teenager who is interested in learning about investment? Or You as a parent want to inculcate the habit of savings and investments in the beginning of your child’s life?
Do you want to invest down the line but want to learn the ropes from a young age? If you nodded yes to any of these questions, then this article is for you. We will learn about one of the most popular and safest investment options to begin the journey of investmets – fixed deposit.
A fixed deposit (FD) is an investment instrument that almost every bank and non-banking financial institute (NBFC) offers. In this investment option, you can deposit money for a higher interest rate as compared to the savings account.
You deposit a lump sum amount of money for a fixed tenure, and the interest will be earned over that tenure. The FD interest rate differs from one financier to another. Ideally, you should not withdraw the money before maturity, but you can do the same after paying the required penalty.
If you want to start investing early with FD, you first have to choose how much money you want to invest. After that, you have to choose a tenure of your choice.
There will be a predetermined interest rate for each tenure. For example, it could be 3% for two months, 3.05% for five months, and so on. So, based on your principal amount and chosen tenure, you will earn interest on the deposited amount.
The only similarity between an FD account and a savings account is that they are both a low-risk option of wealth building.
The major difference lies in the interest rates offered. FD accounts offer higher interest rates which are normally around 3-9% as compared to a 2-4% interest rate offered by a savings account.
1. Normal FD: You deposit money for a fixed tenure which can range from 7 days to 10 years. The interest rates are higher than a savings account.
2. Tax-Saving FD: Tax will be exempted on the principal amount of up to 1.5 lakh in a calendar year. However, you cannot withdraw the money for five years which is the lock-in period. You can only deposit a lump sum amount one time.
3. Cumulative FD: The interest is compounded every month, quarter or every year, which is paid at the time of maturity.
4. Non-Cumulative FD: The interest in this type of FD is paid monthly, quarterly, half-yearly, or annually. You can choose tenure. This is a good choice for pensioners who would want a regular income.
5. Flexi FD: Your FD account is linked to your bank account. The money shuffles between your savings account and the FD account.
6. Senior Citizens' FD: This is applicable only for those who are above the age of 60. The tenures are flexible, and the senior citizens are eligible for special interest rates.
Many choose FD for the various advantages it offers. Here are some benefits of investing FD
It would benefit you tremendously if you know about investment options as a teenager. It would give you a clearer idea of whether you want to invest in FD or not. Since it is one of the safest investment options, FD can be your first investment tool. As you grow, you can start investing in other options.
Investing is important as it ensures present and future long-term financial security. By smart investing, you can build wealth as the years pass by. So, start early and get greater returns as you grow.