What Are Fixed Deposit & How to Save Efficiently With Them

1. What is a fixed deposit?

A fixed deposit is an investment scheme that allows you to deposit your savings for a fixed period of time during which it earns a uniform rate of interest. At the end of the fixed deposit tenure (maturity), you can withdraw the principal amount along with the interest. Fixed deposits are offered by both banks and Non-Banking Financial Institutions (NBFCs).

2. How do fixed deposits work?

When you invest in a fixed deposit, your funds are locked away for a chosen tenure and the principal sum deposited earns interest on a cumulative basis. After a specific period of time, the earned interest is added to the principal amount, which gives you incremental growth of interest benefit.

3. How to open a fixed deposit account?

Opening a Citibank fixed deposit is very simple and requires minimal documentation. You can either do it via Citibank Online from the convenience of your home or by visiting your nearest Citibank branch.

4. Benefits of investing in a Fixed Deposit Account:-

Investing in a fixed deposit account has several advantages. Here’s why you should invest in a fixed deposit:-

• Fixed Deposits offer a higher rate of returns when compared to savings accounts.
• They are a safe investment instrument with stable interest rates and guaranteed returns.
• There is no risk of loss of principal.
• You have the option to opt for periodic interest payouts which can be an additional source of income.
• Returns from fixed deposits are not affected by market fluctuations, which ensures greater safety.

5. Tips to Invest efficiently in fixed deposits

If you are planning to invest in a fixed deposit, follow these tips to maximise your returns:-

Compare and choose the best rate available

Don’t limit your choice to the bank that you have a savings account with. Opt for a fixed deposit account that offers you maximum interest rates for your savings.

Plan Ahead

Whether you are saving for a big purchase or a home renovation, it’s important to plan ahead if you want to achieve your savings goal successfully. When it comes to fixed deposits, the longer the tenure, higher the returns. Therefore, you must choose the fixed deposit tenure carefully. To make things easier, you can also use a fixed deposit interest calculator and plan your fixed deposit investment in advance.

Reinvest Interest Income

With a fixed deposit investment, you have two options; you can either withdraw the earned interest or reinvest it. If you want to maximize your fixed deposit earnings, it’s always best to reinvest the interest. By reinvesting your interest income, you get the benefit of compound interest, thereby giving you better returns on your fixed deposit investments.

Split Your Fixed Deposits

Splitting your fixed deposit may seem like an unconventional Idea, but it does offer great advantages. TDS (tax deductible as source) is charged at 10 per cent on your fixed deposits if the interest income exceeds Rs 10,000. By splitting your fixed deposits you can avoid TDS. Additionally, if you need to withdraw some funds for an emergency, you do not have to break all your Fixed Deposits and lose out on interest.