A fixed deposit is a financial instrument where an investor gives a certain sum of money to a bank or a financial institution(company) and the entity pays interest for the duration of the deposit. The rate of interest paid varies depending on the amount and tenure. Investor’s, especially conservative investors, prefer to open fixed deposits as it is a safe investment option and it can be opened easily and quickly.

The reason why fixed deposits are an ideal form of investment are as follows:

• Guaranteed returns:

  Unlike investment in the stock market or commodity market, fixed deposits are not a risky investment as they do not depend on fluctuating market rates. Investors can rest assured that his investments are safe and he will be getting back a guaranteed amount at the end of the tenure.

• Easily withdrawable:

  The amount that is invested in fixed deposit can be withdrawn at any time for a small penalty. The investor may have a financial emergency to meet financial needs during marriage, sickness or when his business is in loss. The penalty is less than that of selling stocks or real estate as the asset cannot be sold easily because of its high value and if you are in a distressed situation, you will sell it for a much lower rate. Whereas, fixed deposits can be withdrawn at any time and all you lose is a certain interest income.

• Flexible in nature:

  Fixed deposits can be taken for a tenure of 1 month or 1 year or 10 years based on your needs and for whatever amount that you can invest. Fixed deposits can be invested for a tenure of your choice. If you have planned for a big event in 5 years, then you can have a fixed deposit kept for 5 years to meet your financial requirement in 5 years. You can have various fixed deposit accounts to save for different goals.

  Recurring Deposit :

  A Recurring Deposit or RD as it is commonly called is a unique term deposit offered by banks. It is an investment tool which permits those with an ability to make regular deposits earn decent returns on their investment. Basically consisting of regular deposits and an interest component, a Recurring Deposits provides flexibility and ease of use to individuals. Account holders can choose to invest a particular amount each month, ensuring that they have sufficient income for an emergency, with the RD earning decent interest on the amount. Given the fact that FDs are rigid and are not ideal for short terms, a Recurring Deposit is an ideal investment cum savings option.

  Almost all major banks in India offer a Recurring Deposit Account, with the term typically ranging between 6 months and 10 years, providing individuals an opportunity to choose a term as per their needs. Competition among banks to attract new customers has ensured that interest rates are competitive, helping an investor earn a good amount on maturity. The interest rate, once determined, does not change during the tenure, with the Reserve Bank of India ensuring that strict guidelines are followed. On maturity, the individual will be paid a lumpsum amount which includes the regular, periodic investments and the interest earned on them.