Financial planning is crucial to secure yourself from unwanted financial crises. Finding the right investment instrument can be daunting. They often get confused between the various options. They should not leave their money lying idle in a savings account. A great starting point is a fixed deposit (FD).

What is a Fixed Deposit

A fixed deposit is a term deposit in which an investor puts in a lump sum amount that gets locked in for a period of his choice. The fixed deposit interest rate is pre-decided by the bank when the investor opens an FD account which remains constant for the entire life of the FD. An interest calculator fixed deposit tool helps you know the returns beforehand.

Fixed deposits usually have a life of 7 days to 20 years so that the investor can invest their money for the desired period.

Types of Fixed Deposits

Fixed deposits can be cumulative or non-cumulative, depending on the type of payout you choose. A cumulative FD is one in which the entire payout is done at maturity. In a non-cumulative FD, the investor can take periodic interest payouts monthly, quarterly, semi-annually, or annually.

The fixed deposit interest rate is higher in the case of a cumulative fixed deposit, as the investor benefits from compounding on his investment. If you need interest payouts regularly to meet your financial obligations, opt for a non-cumulative fixed deposit. A calculator fixed deposit tool can help you understand the returns of both types of FDs.

Why are Fixed Deposits an Ideal Investment Option for Beginners

Fixed deposits act as a safety net for new investors who are new to financial instruments. They can be an ideal investment option for novice investors for the following reasons.

1. Comfortable Starting Point

Fixed deposits have been loved and trusted by innumerable people for years. They are safe and have been giving decent returns too.

2. To Develop a Habit Of Saving

People who have started earning recently may have some savings. Letting those savings lie idle is not a great idea. You might spend money on unwanted and unnecessary things. So, putting this money in an FD account helps develop saving habits.

3. Better Returns Than Savings Account

The Fixed deposit interest rate is higher than a normal savings account, and there are higher returns with zero risk factor.

4. Easy To Understand

Other investment instruments like stocks require a good understanding of the stock market, companies, and the instrument itself. Investing in such instruments without proper knowledge can be a greater risk. On the other hand, fixed deposits are completely safe. You don’t need to study the market or complex concepts to know the functioning of a fixed deposit. Just use the calculator fixed deposit tool and know your returns.

5. Online Processing

To start an FD account, you do not need to visit the bank and can complete the process online in no time.

6. OD/Credit Card Against Fixed Deposit

FDs give flexibility to beginners as they can use them as collateral to get a Overdraft or Credit Card. Banks offer up to 90% of the FD’s value as a credit.

The Final Word

If you have a financial goal like buying a car or a home, invest in a fixed deposit to save money for it and earn assured returns on your investment. He can also use the FD amount to meet his emergency expenses. FDs come with an auto-renewal facility that ensures that your money does not lie idle and gives you fixed returns.