How Fixed Deposit Accounts Really Work

Posted by Felix Okoli on Friday October 17, 2014 at 15:17:48:

A fixed deposit account is referred to as an account where one deposits a huge sum of money and is guaranteed a non fluctuating high interest rate for a specific period of time. This type of account requires that you deposit your money in the bank for an agreed fixed period of time. The duration and interest rate is most of the time dependent on the terms and conditions of the bank. As a result of this the bank offers you a high interest rate as a compensation for allowing your money stay untouched for that specified duration. Because of the huge rates of interest associated with these types of accounts, they have become popular.

Features of a Fixed Deposit Account
One of the major characteristic features of a fixed deposit account is that for no reason can you withdraw until the agreed period of time. During this time the money stays in the account to be used by the bank. This can be an ideal option for those who can afford to keep their funds untouched for such a long time as the returns can be huge whether there is any fluctuation of interest rates applying to other account types.

This is one of the reasons it is considered an investment account. At the end of the agreed duration if the customer wants, the money deposited can either still be re- invested or liquidated. Also, if there is a change in the interest rate offered by the bank, it does not affect your deposit since it was done before this change. This can be considered as an advantage as well as a disadvantage, depending whether the rates go high or low. Certain factors that get to influence the actual amount of the fixed rates are: the type of currency used in the deposit, the agreed duration of the deposit and also the location where you made the deposit.

Disadvantages of a Fixed Deposit Account
What is considered an advantage can also be seen as a disadvantage when considered under certain circumstances. The disadvantage is that no matter the emergency of the situation, you will not be allowed to use the money until the agreed duration is complete. Even if the banks decide to give back your money, the interest will not be included. This is to say that, the moment you terminate the agreement before due period, the supposed interest will not be accrued - you will forfeit it. This will mean a waste of effort.

Benefits of a Fixed Deposit Account
The advantage that these types of accounts have is that they are not affected by the banks fluctuation of interest rates in terms of it dropping. Whether or not the interest rates of the bank drop during your account tenor, the account is not affected. Also, though you cannot withdraw your money, you still have the privilege of getting a loan from the bank without collateral. This is especially if your deposit is huge enough to serve as the collateral of the loan.