Fixed deposits are types of saving accounts when an amount is stored in fixed deposit account regulated by bank or any financial institution. The aim of fixed deposit is to put a large amount on a safer side by getting an interest income on it. This is fixed rate of interest, which will not change as per change in market rates. This fact is a positive sign regarding fixed deposits interest, as it protects the investor from down ward movement of interest rates .On the other side; this lock in interest rate will stop the investor from more gain in case interest rates in the financial market are rising. Nevertheless, fixed deposits is an easy way to store surplus funds in order to make them released after a certain period of time along with the financial add up of interest. Individuals, all profit and not for profit, companies go for fixed deposit arrangement to make their liquid funds stored. In other way, you can compensate for reduced time value of money in case you out funds in fixed deposits accounts instead of leaving them unused.
The rigid aspect of fixed deposits is, you have to keep your money fixed for few years and you cannot withdraw this money before its maturity. The normal maturity period of fixed deposits is 5 years. Investor is not able to withdraw money before completion of its maturity period. This is a fact that no one can stop the emergency when finance is needed. Keeping in view the rules of fixed deposits, you cannot withdraw the amount .However, to facilitate the investor in such conditions; many banks allow credit by having this fixed deposit account in collateral for this. This counter measure is only available when these is no alternative solution left. Good investors, never take this opportunity as ideal way of managing emergency need of money.
There are various types of fixed deposits and along with bank many companies offers this arrangement. Companies offer higher return as compared to bank. In reality, this is a loan arrangement where account holder deposits a sum for longer period and bank or financial institution is bound to pay this money back by adding interest on it. Certificate of deposits is also a fixed deposit contract. This can be purchased from any credit union, bank or a company; this is a commercial paper, which has fixed interest rate, a monetary value and a specific maturity period. Certificate of deposits have maturity period starting from three months until 5 years maximum.
Fixed deposits are known as term deposits, time deposits and also known as “bond” in some countries.
There are also foreign currency fixed deposits, investor can buy a sum of foreign currency and fixed it for a period. Investor can gain double advantage in return .i-e interest income as a gain as well as raised value of currency, and increased value of currency in terms of higher exchange rates. In some cases, there is a risk of unfavorable situation if the foreign currency does not exhibit falling rate of currency exchange.