FD Full Form Explained | FD Features and Benefits

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Last updated on September 16th, 2022 at 10:21 am

In this post, find the full form of FD and how FD works. Learn about the benefits of FD as well as the many forms of FD.

Customers of banks and non-banking financial firms (NBFC) can invest in a fixed deposit (FD) to save money and get a higher return. You will receive the lump sum, in addition to the interest, at the conclusion of the term, making this an excellent method for conserving money.

The full form of FD is Fixed Deposit.

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A fixed Deposit (FD) is a type of deposit that banks in India offer that pays interest.
One way to look at it is as a contract between the depositor and the bank for a specific amount of time.

FD stands for “Fixed Deposit,” which refers to a deposit that is kept by a bank or other financial institution for a predetermined amount of time following an agreement between the depositor and the bank.

When you open a savings account with a bank, you have the opportunity to take money out of that account at any moment, even though it is considered a savings account.

But you won’t always be able to get your hands on the cash in your fixed deposit account.

You are able to make a single withdrawal from the fixed deposit or many withdrawals before the due date.
If you withdraw your fixed deposit before to the specified deadline, the bank will charge you a fee equal to a percentage of the amount withdrawn.

FD accounts come with restrictions on the quantity, frequency, and/or duration of withdrawals, but they offer a greater interest rate compared to standard savings accounts.

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is fd beneficial

Benefits of Fixed Deposit

Customers may place fixed deposits with the bank with terms ranging from seven days to ten years, with the minimum term being seven days and the highest term being ten years.

On the other hand, the interest rates that are offered by fixed depositors are noticeably higher than the interest rates that are supplied by conventional savings accounts.

Until the date of maturity that has been selected, it offers investors a rate of return that is higher than the typical rate of return offered by savings accounts.

The most important advantages of FD are as follows:

is fd a good investment in india
  • The risk involved in investing in FDs is minimal.
  • Assured Returns: With a fixed deposit, you are sure to get your money back.
  • Because it has less liquidity than deposits, it also offers interest rates that are higher than those of a savings account.
  • Flexible Tenures: You have the option of making either a short-term or a long-term investment in an FD.
  • The value of FDs does not depend on the ups and downs of the market.
  • A Good Rate of Return on Investment: Because the interest rates are set in advance, there is no need for investors to be concerned about the returns.
  • If you reinvest the interest that is earned, then the overall income will increase to reflect the additional interest that was earned.
  • Loan: Even if you have deposited money for a specific amount of time with the bank, you may still be eligible for an emergency loan of up to 80–90 percent of the total amount secured by FD documents.

How Interest on FDs is Worked Out

The following formula is used to figure out the interest on FDs.

A = P(1 + rn)n * t

The full form of the formula’s variables:
A: Maturity interest
P: Principal amount
R: Rate of interest
n: Compound interest frequency
t: Duration

What you need to know before you open an FD account

Before opening a fixed-deposit account, there are a few things that must first be understood, which are detailed below.

  • It’s a good idea to compare the bank’s interest rates with the higher interest rate.
  • Check to make sure that the lending institution is safe and reliable.
  • Pick a bank that has good customer service.

There are 5 kinds of fixed deposits.

Depending on their business strategies, all financial institutions provide customers with a variety of deposit options.
The deposits are made available by the banks and can be distinguished by their interest rate, principal amount, duration, tax status, or other characteristics.
The characteristics of these 5 deposits are as follows:

1. Cumulative/Compound Interest FD:

The interest collected from the cumulative fixed deposit is reinvested in the FD account. At the end of the agreement, the amount is returned with compound interest and principle amount.

2.Corporate FD:

Putting money into corporate fixed-income securities carries some level of risk. However, in comparison to those of other banks, the interest rate will be higher.

3. FDs for Non-Resident Indians (NRIs):

NRIs are eligible to submit applications for fixed deposits known as non-resident external (NRE) and non-resident ordinary (NRO).
You are able to invest the sum in several foreign currencies through the bank. NRE Fixed Deposits do not attract tax, however NRO Fixed Deposits do attract a tax of 30%.

4. Floating FD:

The interest rate that is calculated and applied to the total amount of floating fixed deposits is the same as the rate of interest that is currently in effect.
The Reserve Bank of India is in charge of determining interest rate policies (RBI).

5. Flexi FD:

There is a connection between a flexi fixed deposit and a savings account. Because of this deposit, the bank is able to automatically liquidate and transfer funds between the savings account and the FD account.
It is helpful in keeping a minimum balance between the fixed-deposit account and the savings bank account.

  1. What does FD mean in banking?

    Fixed deposits, or FDs, are bank deposits.With an FD account, you can invest a large sum of money at a fixed interest rate. At the end of the term, you receive the lump sum plus interest, which is a good way to save money.There are different interest rates for a fixed deposit account at different banks..

  2. What is FD used for?

    A fixed deposit, often known as an FD, is one of the most common types of investments because it offers numerous advantages, including high interest rates and guaranteed returns. You are able to use your fixed deposit as collateral for a loan. You can utilize FD to obtain guaranteed returns at predetermined time periods.

Robins Antony

I am an active blogger who makes regular use of a variety of banking services, including online banking, banking mobile apps, credit cards, debit...

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