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How Does a Fixed Deposit Account Work
Posted on Thursday, October 17th, 2024 | By IndusInd Bank
One of the best options for people seeking guaranteed returns is a fixed deposit. A fixed deposit account guarantees interest on the money deposited for a specified tenure. This means that the funds sitting idle in your savings account can generate higher returns if you open a fixed deposit.
But how do FDs work, and why do banks offer these deposits at a higher interest rate? Understanding the mechanism behind fixed deposits can help you make informed decisions.
Before diving into the details of how a fixed deposit works, it’s crucial to understand how banks operate. Also, many people worry about the safety and reliability of their investments. This is especially true in volatile financial markets. This guide explains the workings of fixed deposits and addresses concerns about the security of your investment.
How Do Banks Operate?
Lending and borrowing are the two distinct verticals that banks run. A bank offers a secure location for people and businesses to store money. Depending on the type of account, banks offer interest to customers who deposit money with them.
The bank also performs lending operations using the money it accrues from various deposits. Most banks provide their clients with a large selection of loans, including personal, business, home, and auto loans. Those who borrow these loans are charged interest.
The bank’s income is the difference between the interest it receives on loans and the interest it pays on deposits.
Now that we are familiar with how banks operate let’s look at how fixed deposits function.
How Do Fixed Deposits Account Work?
Savings and current accounts are facilities offered by the banks. But depositors of these accounts are free to withdraw money at any time. There are zero balance requirements for current accounts, and it is not possible to estimate the amount in those accounts.
To provide loans, banks need a fixed amount of money. And offering a fixed deposit facility is an effective way for them to raise these funds. When making a fixed deposit, the bank sets aside a certain amount of money for the duration of the deposit. These deposits range from seven days to ten years, thanks to the flexibility offered by banks. The tenure the funds are left with the bank determines the interest rate on the deposit.
Depositors can’t withdraw money before the due date. Some banks allow early withdrawals but with lower interest and even a penalty. The principal and interest are credited to the depositor’s bank account by the bank on the maturity date.
So, before locking away your money for a set time in an FD, you should know the interest rate, tenure, and other key details. To assist you in making an informed choice, you can use the IndusInd Bank’s Fixed Deposit Calculator to determine the FD amount and the interest you will earn.
Also read: Fixed deposit myths debunked: What you need to know
Conclusion
In conclusion, understanding how fixed deposits work is essential for secure investments. Fixed deposits involve depositing a sum for a set period at a fixed interest rate, offering guaranteed returns and capital protection. This makes them a popular choice for investors seeking stability and predictable earnings.
Ready to secure your financial future with an IndusInd Bank Fixed Deposit Account? Explore our options today and start earning guaranteed returns with peace of mind.
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
