Fixed deposits are very old instruments offered by financial organisations to customers who want lump sums to grow in a safe environment.
In this report, linkedin.com explains some basic terms on fixed deposit.
1. Interest rates: The fixed deposit interest rates are the rates, in percentage, at which money deposited in a fixed deposit grows. The rate is decided by the bank or institute, which holds the fixed deposit and can change from time to time. The interest rates offered also depend on the duration for which the fixed deposit is being opened and the amount that is being deposited.
2. Term deposit: Term deposit is another phrase used to describe a fixed deposit. It means that an amount of money has been invested/deposited for a fixed duration, or term, in a bank. The term deposit can be opened for a few days or a few years based on the depositor’s preferences and the fixed deposit scheme rules.
3. Maturity: When a term deposit is opened, it is opened for a specific duration, ranging from seven days to 10 years. If the deposit is not withdrawn prematurely and allowed to remain for the agreed time, then, it is said to have matured once that period is over. For example, if you open a fixed deposit for two years, then on completion of two years, your fixed deposit would have reached maturity.
4. Premature withdrawal: If a fixed deposit opened for a specific tenure is closed before the tenure expires, then it is said to have been withdrawn prematurely. In case a fixed deposit is withdrawn prematurely, the bank may impose penalties such as discounted interest rates, depending on the bank’s rules.
5. Tenure: The tenure is the duration for which you want to open the fixed deposit. For instance, if you open a fixed deposit for five years, then the tenure is five years.
6. Automatic renewals: Automatic renewals are just what the name implies. When opening a fixed deposit, the customers can indicate if they want the fixed deposit to be renewed once the tenure is over or have it paid out to a specific account on maturity. In case these instructions are not present with the bank, they will keep renewing the fixed deposit until it is claimed by the owner or the nominee.