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Fixed Deposits and Bonds

Providing your hard earned money with right safety and security measures has become an important task, to carry out for every individual. The commercial banks and other financial companies, offer people with services like opening an account, where money can be deposited. This account acts like a storage system, for the money you earn. There is an interest rate that appreciates the money on a monthly or yearly basis. For example, a person opens an account with Rs.50,000 deposited with an interest rate of 10% p.a. After a year, the money will increase by 10% i.e. 55,000. Various types of accounts can be opened by a person like; current, personal, recurring and savings. The interest rates of these do not remain constant, which is not in the case with fixed deposits.

A fixed deposit provides the investor with a higher rate of interest compared to other means of saving. A separate account may or may not be required to be created. The interest rates of a fixed deposit is fixed until a given a maturity date. These funds cannot be withdrawn prior to the date of maturity. However, they can be withdrawn only after giving advanced notice and/or by paying a penalty rate. The method of fixed deposits is often used by individuals, financial institutions and businessmen, in order to store their liquid funds for a fixed duration, for future use. In the retail market as well, they are relatively safe investments when provided by banks, loans and savings corporations and also credit unions. As it is said to be a common usage among Indian people, other countries also see a prominence of these accounts. The fixed deposit schemes in India are offered with a wide range of tenures from 7 days to 10 years. The term fixed denotes a fixed rate of interest and fixed maturity period.

There are various components to keep in mind while choosing this investment option:-

• Principal Amount - It means the amount deposited in the bank
• Duration of the fixed deposit
• Interest Paid by the bank
• Penalty clause

The commercial banks and financial corporations have provided their own FD schemes.

The main different between these types of fixed deposits is the interest rate and risk involvement. Non-banking financial corporations provide with higher interest rate than banks and also carry a high risk factor in them.

Fixed deposit system, has proved to be beneficial by investing a large amount of money. The increment of money provided through them is more than the other options available.

However, there are some other long-term benefits offered as well:-

•Safety - The RBI (Reserve Bank of India) regulated banks and financial institutions provide a very secure and safe way to invest money.

•Regular Income - The fixed deposits earn fixed rates of interest for the entire tenure which is generally compounded on a quarterly basis. Investment through this method can provide a regular source of income through interest rates. This has gained popularity among the retirees.

•Tax Saving - The directives of the income tax department in India state that FDs of maximum amount of Rs 100,000 for 5 years are eligible for deduction in tax. Therefore, they can be said to provide savings on tax and give returns at the same time.