If you're thinking of investing in fixed deposits for a longer period of time, we don't think it's a good idea. This is because interest rates will begin to trend higher at some point in the next year or so. Let's assume you put your money in a fixed deposit for five years. This suggests that if interest rates rise, there's a good chance you'll be disadvantaged.
If you split your deposit and reinvest at a higher interest rate, banks typically deduct 1% from your deposit.
A fixed deposit (FD) is a conservative investment choice offered by a number of banks, post offices, and other financial institutions. Based on your investment objectives, you can choose a fixed tenure. After this time period has passed, the deposit receives interest. The profit is paid over the entire investment period.
The interest rate on a fixed deposit is fixed at the outset and remains constant over the term, regardless of market fluctuations. However, there is one major snag: there is a penalty for withdrawing early. You are unable to withdraw your investment prior to the maturity date. This penalty varies by bank, but it is the same for all of them.
What are the Disadvantages of Opening Fixed Deposit Account?
The disadvantages of opening fixed deposit account are as follows-
Low Liquidity:
When opening this form of account, you should be prepared to wait until the specified amount has been reached before proceeding. If you plan to close it early, you will be subject to penalties and will not earn the amount of interest you anticipated. As a result, you won't be able to access your funds in an emergency, making it a less attractive investment choice in terms of liquidity.
Time Constraints:
FDs are long-term investments with time constraints. When you open one, you are effectively freezing the sum of money for the duration of the account and will not be able to access it.
Fixed Interest Rates:
The interest rates on a fixed deposit account are set in stone. When you say you'll get the same amount of interest over the course of your savings, you're referring to the fact that you'll get the same amount of interest over the course of and if interest rates rise during this time span, you would not be able to take advantage of any of the advantages.
Premature Withdrawal Penalties:
These accounts cannot be closed or withdrawn until the specified time period has passed. A penalty will be levied on a depositor who closes the account before the deadline. The penalty is deducted from the total amount of interest due.