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Financial planning involves investing your money in multiple avenues, like mutual funds, government bonds and schemes, and term deposits. All these financial instruments have unique features and cater to different investment objectives.
Among the various investment tools available, a term deposit is a safe investment choice, and you can consider investing in it to keep your savings secure. You can generate reasonable returns based on the term deposit interest rates on your investment.
Read further to learn everything about term deposits in India, including the term deposit meaning, benefits, and features.
What is a Term Deposit?
Term deposits collectively refer to fixed deposit and recurring deposit schemes offered by banks and Non-Banking Financial Companies (NBFCs). Term deposits are time deposit schemes where you invest money with a financial institution for a fixed duration.
The duration of a term deposit may vary from week to several years, and you have the freedom to choose a tenure that matches your investment goals. The minimum deposit requirements for a term deposit may vary for various banks and NBFCs.
The depositing institution pays you an interest rate on your investment. The term deposit rates may vary for various financial institutions, but they are usually higher than bank savings account interest rates.
Term deposits are low-risk investments, and you can watch your funds grow steadily over time at a predetermined interest rate. The term deposit interest rates remain unchanged until maturity, and external factors like market volatility and the financial institution’s changing policy on interest rates do not affect your investment.
Features of Term Deposit
The term deposit interest rates are fixed and do not change during the deposit’s tenure.
You can choose the term deposit maturity period. A higher tenure usually gives higher interest returns on term deposits.
You can choose the interest payout method based on your monetary needs. If you want regular payouts to meet recurring expenses, you can choose a non-cumulative, periodic payout, like a monthly or quarterly payout. If you want to keep your funds invested till maturity, you can opt for a cumulative payout and enjoy the benefit of compounding on your investment.
You can ladder your term deposit investments by creating multiple term deposit accounts with varying maturity dates. You can use the funds you receive at different times to meet your short-term and long-term investment goals.
Term deposits have a rollover feature. You can reinvest the cumulative amount at the end of the deposit tenure at the new applicable interest rate. You need not go through the hassle of withdrawing your funds and creating a fresh investment account to reinvest your money.
Term Deposit Benefits
Guaranteed returns1: Term deposits offer guaranteed returns1. The returns are fixed at the time of opening the term deposit account, and they do not change till the investment matures. Therefore, you can plan your future expenses in advance as you already know how much money you will receive and by when.
Stable returns: Term deposits stay unaffected by the market sentiment or the financial institution’s policies. They are a relatively low-risk investment option and are ideal for conservative investors who do not want to put their investments at risk.
Flexible investment duration: You can choose to invest in a term deposit for a duration that suits your financial needs. If you plan to make a significant expense in the near future, you can invest for a short duration. On the other hand, if you want to keep your funds safe for long-term goals like retirement, you can choose a longer duration and even reinvest your money.
Loan facility: You can get a loan, usually up to 75% of the term deposit amount, and need not withdraw funds from your investment. This way, you can continue to enjoy the term deposit rates while meeting your emergency fund requirement.
Low minimum investment amount: Most financial institutions allow you to start a term deposit for as low as ₹100. It allows you to develop a habit of saving, even when you do not have a high amount to invest.
How to Invest in Term Deposits?
As stated before, you can invest in a term deposit with a bank or an NBFC. A term deposit is also called a certificate of deposit, and you can view all the details about the investment, like the initial amount, penalty charges, interest rate, deposit duration, etc., in the deposit statement.
Here is how you can go about investing in a term deposit:
Step 1: Select the bank or NBFC with which you want to start a term deposit. Consider the interest rates, ease of investment, reputation of the depositor, and other factors here.
Step 2: Select the amount you want to invest and decide the investment duration and payment mode you want. The returns are higher for a larger initial investment and a longer investment term.
Step 3: Complete the KYC process, submit the required documents, and deposit the initial amount to start the term deposit investment.
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Wrapping Up
Term deposits are time deposit plans, like fixed deposits and recurring deposits, offered by banks and NBFC. You can invest in a term deposit plan for a tenure of your choice. The initial investment amount of a term deposit is usually low, and the term deposit interest rate depends on the amount and duration of your investment. You can add life insurance to your financial portfolio to enhance your and your loved ones’ financial security.
