It is a type of bank account where you deposit a lump sum for a fixed period of time, upon which you will receive a fixed interest. Usually the interest rates on such accounts will be more than a regular deposit account. Once you open such an account you are not expected to withdraw the money until the period for which the account was opened reaches its maturity.
Fixed investment options, such as this, have been a very popular investment option for people in the UAE for generations, and for good reason. The advantages are as follows:
When opening a fixed deposit account, the investor will get guaranteed return on his investment as the bank provides certainty of the same. Though the rate of interest may vary from bank to bank, the investor will also have a sure idea about the amount he would receive at the end of that period. Therefore it is a very safe option of investment.
These accounts usually have a higher rate of interest than regular bank accounts. So if you are ready to invest for a longer time, and is looking for a high interest rate, then fixed deposit is probably the best option for you.
The approximate interest rates are :
Note: the above rates are for deposits made using AED and are from Standard Chartered Bank, UAE
Since fixed deposits are opened with a bank, the bank vouches for the safety of your investment and guarantee of interest. Unlike other options of investment that provide higher interest like mutual funds or stock exchange, these are by far the safest option.
Though this type of an account has lots of benefits, it is not to say that they are totally demerit free. Some of the disadvantages are:
When opening this type of an account, you should be willing to wait till the end of the amount decided before opening the account. If you decide to close it prematurely, then you will face penalties and you will not receive the amount of interest you were hoping to receive. So you will not be able to withdraw your funds in case of emergencies making it a less favourable option of investment when it comes to liquidity.
FDs are long term investments. Once you open one, you are freezing that amount of money for that period and you will not be able to use it.
The interest rates are fixed for a fixed deposit account. When means that throughout the period of investment you will receive the same amount of interest. Even if the interest rates were to increase in this said period of time you will not enjoy any of the benefits.
These kinds of accounts are not supposed to be closed or withdrawn until the fixed period ends. If a depositor were to close it before this time a penalty will be imposed on him. The penalty is a deduction on the interest to be paid.
In conclusion, one should go for this if they wish to get a higher rate of interest, but are also ready to commit a specific amount of money for a fixed period. Fixed deposits are a very safe, high interest, less liquid form of investment.