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Fixed deposit

Modified date: 26/05/2020
Features of a fixed deposit

Currently, banks and financial institutions offer their customers a large number of instruments to save and increase their savings. In this article, you will find out about the fixed deposit - an instrument for saving and receiving passive income.

How does a fixed deposit work?

A fixed deposit is a type of low-risk cash investment. The principle of operation is similar to any other deposit. The depositor puts the money at the disposal of the bank or investment company for a certain period. The company uses this money in its activities. It returns money to the depositor with a profit after the expiration of the deposit. A depositor may open a deposit for a period of several days to several years.

The interest rate on a fixed deposit depends on the duration of the deposit. The longer the term, the higher the interest rate. Due to force majeure situations (pandemic, natural disasters) and the unstable economic situation in the world or region, interest rates may decrease. Minimum deposit amounts and duration depend on the rules of the banking system of a particular country and the financial policies of the bank or investment company. There is a lot of information sites that let people know which financial institutions provide the highest interest rates on fixed deposits in any country in the world.

Features of a fixed deposit:

1. Limited access to money

The investor will be able to withdraw money and profit only at the end of the deposit period. The depositor will not be able to replenish the deposit or withdraw part of the invested amount. Usually, banks and investment companies provide the opportunity to withdraw the full amount before the end of the deposit period, but the penalties for early withdrawals may be charged. Part of the profit or even all of the profit may be lost. Therefore, before opening a deposit, the investor must be sure that the invested amount is not needed throughout the entire period of the deposit. At the same time, if the depositor wants to increase the deposit amount of the open deposit, he will not be able to do this. He will have to open another fixed deposit.

2. Higher deposit interest rates

Since the depositor’s access to money is limited by the conditions of a fixed deposit, banks offer higher interest rates than for ordinary savings deposits. Therefore, a fixed deposit is a deposit with a relatively high rate of return.

3. Safety

As a rule, fixed deposits are insured. In case of loss, the insurance compensates for part or all of the deposit. It depends on the size of the deposit.

The profit on the deposit can be paid by regular payments throughout the entire term of the deposit. Also, profit can be added to the main deposit. Then in the next time, interest will be accrued on the increased deposit. Such a deposit is called cumulative.

So, the strengths of fixed deposits are relatively high stable interest rates, deposit insurance, and low risks.

The disadvantage is a payment of a deposit at the very end of the deposit term

The sites of many financial institutions have a Fixed Deposit Calculator. With its help, the investor can calculate what profit he will receive. For example, how many months does it takes for a fixed deposit to double? This is a very convenient tool for those who are wondering is a fixed deposit worth it?

If you choose where to open a fixed deposit, pay attention to all conditions, and not just the interest rate. Conditions should suit all your needs.

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