Fixed Deposit (also known as time deposit) is a kind of saving instrument that allow customers to place their money with the banks or financial institutions and earn a higher interest rate than a savings or current account.
Fixed deposit are available in various tenure like 1month, 3 months, 6 months, 9 months, 12 months and 24 months.
Customer can decide on the tenure for his money to be placed in fixed deposit. His money will be safe held by the banks and upon maturity (agreed deposit tenure), he is then allowed to withdraw the money together with the interest.
If he decided to withdraw the money before maturity, he will need to terminate the fixed deposit and not entitled to any interest.
Fixed deposits are suitable for customers who have additional cash and do not need it for the next few months. Thus, placing it in fixed deposit to earn more interest.
Fixed Deposit Advantages and Disadvantages
The advantages of putting money into a fixed deposit is due to the higher interest and also it is risk-free as there is no investment instrument involved in fixed deposit.
The disadvantage of fixed deposit mainly is due to the loan tenure, which your money is “locked” with the bank. If you choose to withdraw your funds before maturity (before the agreed deposit tenure), you will only get back your original deposit amount without any interest. Therefore, your money earn 0 interest if you decide to terminate the fixed deposit before it mature.
Some fixed deposit contract may have an additional penalty upon early termination. This is mainly due to the attractive gifts or vouchers given by the banks upfront to the customers when they took up the fixed deposit promotion.