Term Deposit Meaning
It is an instrument where the money is deposited for a fixed period of time in the bank and it will not be available for the depositor to use it during the time committed to be deposited. It is a financial Instrument designed by the Banks to ensure that they hold the money for certain period of time for its disposal at their will.
Salient Features of Fixed Term Deposit (FTD)
It has the following features:
• FTD are issued in the form of a certificate acknowledging that the person has deposited the mentioned amount for the mentioned period of time.
• The money becomes automatically payable to the depositor once the period is over or the customer request for early refund.
• Interest is payable for the term at the rate as may be fixed at the time of the start of the fixed deposit. However based on the terms of the instrument, banks penalize and reduce the interest payable incase of request for early withdrawal than the specified period.
• The benefit of this instrument is that it provided consistent return incase the interest is made as payable quarterly or monthly. It also provides the leverage for the bank to use this money for the period deposited.
• It is used as an investment instrument where the money remains safe and provides a pre decided return.
• In some of the countries the income received as interest is considered as taxable and is subject to Tax Deduction at source
• This instrument is structured smartly so that there are variable interest rates for the different time periods for which the money is deposited under the fixed deposit schemes.
• For persons willing to have a safe investment though at lower interest rate, this instrument is a good option because this not speculative in nature and the amount deposited by the person stay secured.
There are schemes where return can be added back to the deposited amount and the interest can be compounded also. This helps to increase the return on investment for the person.
The Instruments can be issues as on the name of the person or a bearer document and can be encashed post the maturity period. Generally the fixed deposits are issued for one year or more and are also renewable at the option of the depositor – Payday Loans Near Me.