What is Fixed Deposit scheme and How Interest Rate is calculated?
If you want to invest your hard-earned money, the safest way to do it is by investing it in fixed deposits.
Fixed deposits provide you with secured returns after a specific period and are not subject to market risks.
You can also invest your money in other stocks, but they are not as risk-free as fixed deposits.
Stocks are highly dependent on the market cycles and conditions, and their prices can fluctuate rapidly. Such fluctuations might affect your expected returns, and you might end up losing your money.
Thus, it is always better to invest in fixed deposits owing to their high security. It is even more beneficial for aged individuals who are incapable of sustaining added risks that might be present in other investments.
Here are some of the most important things you should know about a fixed deposit scheme.
What is a Fixed Deposit and how it works?
A fixed deposit is a scheme that invests your money in a financial organization for a specific period, say for five years or less, depending on how quick you want your funds.
The economic organization provides you an interest on the principal amount you invest that accumulates as your investment returns.
The interest accumulates in your account, and you can withdraw the principal amount and the interest amount at the time of maturity.
How is Fixed Deposit interest calculated?
The interest of a fixed deposit is calculated on the principal amount and the number of months/years opted by the individual.
The general formula for calculating the cumulative interest is-
Amount = Principal Amount (1+rate of interest/ compounded interest frequency) ^compounded interest frequency* period
Do Fixed deposit interest rates vary?
The fixed deposit interest rate is generally constant. However, the interest rates might be higher for senior citizens and go up by a few basis points.
Though the interest rate is consistent in all other cases, the amount of interest you receive might vary.
For instance, the interest on your fixed deposit depends on your principal amount and the period. The longer the time of your fixed deposit, the greater will be its interest amount.
Fixed deposit interests are also flexible. An individual can decide the intervals at which they would prefer to receive the interest amount.
For instance, one can choose a monthly, quarterly, or annual mode of interest payments. A flexible payment system is highly beneficial because individuals, especially aged people, have recurring and non-recurring expenses.
Thus, receiving monthly or quarterly interest payments helps them to cover their regular costs.
On the other hand, one can also accept the entire amount at the time of maturity to fund huge non-recurring expenses like the marriage of children, gifting a property, and the like.
Fixed deposit schemes are the easiest and safest investment mode for individuals, especially those nearing retirement or senior citizens.
While, on the one hand, the interest received on fixed deposits is higher, the returns received are also set and risk-free. Thus, fixed deposits serve to be one of the most popular investing methods amongst most aged people.