How do Fixed Deposits work?

What are Fixed Deposits?

How do they differ from regular savings accounts?

Answer:

Fixed Deposits (FDs) are financial products offered by banks that provide investors with a higher interest rate compared to regular savings accounts. When you open an FD, you agree to deposit a certain amount of money for a fixed period, during which it earns interest.

Fixed Deposits work by allowing individuals to invest a specific amount of money with a financial institution for a predetermined period, such as 3 months, 6 months, 1 year, or more. The interest rate offered on FDs is typically higher than that of a regular savings account, making FDs an attractive option for individuals looking to grow their savings at a faster pace.

Unlike regular savings accounts where the interest is generally lower and can fluctuate, the interest rate on Fixed Deposits remains constant throughout the agreed-upon period. This provides investors with certainty regarding the return on their investment.

At the end of the FD term, the principal amount along with the accumulated interest is returned to the investor. The interest earned can be paid out periodically or reinvested, depending on the investor's preference. It's important to note that withdrawing funds before the maturity date may result in penalties or a lower interest rate.

In summary, Fixed Deposits offer a secure and predictable way to grow your savings by earning higher interest rates over a fixed period compared to traditional savings accounts.