In the past two decades, the inflation rate has significantly increased. The rapid rise of the inflation rate is likely to continue in the years to come. This rising rate reduces your purchasing power. In the worst-case scenario, it also makes affording necessities difficult. Investments are a viable way to beat inflation. Hence, actively invest.

A Fixed Deposit is a popular investment option among all types of investors. Simplicity is a prominent reason behind the widespread popularity of FDs. Just invest a lumpsum amount for a fixed tenure, and you earn modest interest income through your opted tenure. Like other investments, an FD is associated with a set of terms and conditions. Every bank and financial institution follows different terms. However, here are the basic ones:

Fixed Deposit confirmation

You receive an FD confirmation document upon opening a Fixed Deposit Account with the bank. The document confirms the deposit's placement with the bank. You need to present the confirmation document if you wish to make a partial withdrawal or premature account closure. In case of a partial withdrawal, you get a new FD confirmation indicating the new principal investment.

The previous confirmation document gets automatically treated as cancelled on the issuance of the new confirmation document.

Terms and interest rates

You can invest in FD for a minimum tenure of seven days, while the maximum is five years. You can find a detailed chart of the FD interest rates applicable for different tenures. Check the bank's website or download their Banking App to learn about the extended interest rates and associated calculation methods.

The FD interest rates are subject to the bank's discretion, which aligns with the RBI guidelines. Hence, it can be changed often. The same holds true for the interest calculation methods.

Premature closures

The banks let you withdraw your FD investment before its maturity. The bank pays interest only for the tenure for which you were invested. The bank considers the prevailing or contracted rate, whichever is lower for interest calculation. You are also liable to pay a 1% penalty for premature closure. The bank deducts taxes if your interest income exceeds the threshold limit prescribed by the Indian Income Tax Department.

The interest income gets taxed at rates as applicable as per the governing laws. The proceeds from the FD investment are credited to your linked Bank Account on the bank's decided date, assuring the safekeeping of your money.

Renewals

The bank notifies you via email and SMS a few days before the maturity of FD. This gives you a chance to renew your investment in time. The renewal happens as per the prevailing RBI guidelines.