What to know before opening a fixed deposit account

Fixed deposit accounts are very old instruments offered by banks and other financial services companies.

Fixed deposit accounts are not restricted to individuals. Companies and government organisations can put their money in fixed deposits to help it grow. The best thing about a fixed deposit account is that since it is not linked to the financial markets, the investment is safe.

According to www.bankbazaar.com, there are some terms you need to know in order to successfully navigate the world of fixed deposit account. These include:

Interest rates

The fixed deposit account interest rates are the rates, in percentage, at which money deposited in a fixed deposit account grows. The rate is decided by the bank or institute that holds the account and can change from time to time. The interest rates offered also depend on the duration for which thefixed deposit account is being opened and the amount that is being deposited.

Discounted interest rates

The question of discounted interest rates generally comes up when the interest earned on the account is paid out monthly or the depositor closes the account before maturity. The term actually means that the interest paid will not be at the contracted rate proposed at the time of opening the fixed deposit account. It is usually lower.

Compounded interest

Many fixed deposits offer interest, which is compounded quarterly, half-yearly or annually. What this means is that the amount earned via the interest on the fixed deposit account is taken and added to the fixed deposit and thereafter. This means that even the interest earned will earn an interest, thereby enhancing the growth of the fixed deposit account.

Term/fixed deposit

Term deposit is another term used to describe a fixed deposit account. It means that an amount of money has been invested with a bankfor a fixed duration, or term. The term deposit can be opened for a few days or a few years based on the depositors’ preferences and the fixed deposit scheme rules.

Maturity

When a term deposit is opened, it is opened for a specific duration. If the deposit is not withdrawn prematurely and allowed to remain for the agreed time; then, it is said to have matured once that time period is over.

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If a fixed deposit opened for a specific tenure is closed before the tenure expires, then, it is said to have been withdrawn prematurely. In case a fixed deposit is withdrawn prematurely, the bank may levy penalties like discounted interest rates depending on its rules.

Tenure

The tenure, quite simply put, is the duration for which you want to open the fixed deposit account. For example, if you open the account for five years, then the tenure is five years.