FD Interest Rate: A Fixed Deposit is one of the most secure investment instruments. The funds parked in the scheme are not affected by the volatile market movements and offer a steady growth, meaning an individual can earn a guaranteed return on the money deposited for a fixed period of time.
The FD interest rate varies from bank to bank. Almost all public sector and private banks including the post office, today offer Fixed Deposits. Although many instruments are available in the market that promise higher returns than the FDs, this conventional mode of investment is still preferred by a large population, especially in small towns and rural areas. This is mainly because FD is a risk-free instrument and also qualifies for deduction under section 80 (C) of the Income Tax Act, 1961.
The investment tenure and return of FDs vary across banks. Generally, the tenure ranges from seven days up to 10 years.
The interest earned through an FD is calculated using the compound interest formula. The return is compounded periodically — monthly, quarterly or annually. Typically, FD’s return is compounded quarterly.
In other words, a Fixed Deposit account is an account where an investor deposits money for a specified period and the interest rate does not fluctuate during the period that is decided at the time of opening the account.
Many banks offer an additional return of 0.5 per cent to senior citizens to regular customers. Besides, many banks also allow investors to apply for a collateral-free loan against FDs. The loan amount against fixed deposits offered by the banks generally is 75 per cent of the FD value. This provides liquidity.
Therefore, one can easily invest in Fixed Deposit without having to worry about returns and defaults.