Finance

What is the Difference Between FD and Flexi FD?

Fixed Deposits (FD) and flexible fixed deposit are two types of savings instruments offered by banks.

A Fixed Deposit is a traditional savings product where a person can deposit a fixed amount of money for a specified tenure.

The interest rate for an FD is fixed for the entire tenure, and the depositor cannot make any withdrawals before maturity.

Now, you would need to know about

  •  The interest rate for an FD and Flexi FD
  •  Fixed for the withdrawals before maturity
  • and many more details

Keep reading to learn about FD and Flexi FD, including essential information.

So, First, What Is a Fixed Deposit?

Fixed Deposit (FD) is a savings instrument that banks and financial institutions offer.  In this deposit, the depositor can invest a fixed sum of money for a specified period of time.

The tenure of a fixed deposit can range from a few months to several years in exchange for leaving their money in the deposit for the specified time.

And the depositor receives a fixed rate of interest, which is higher than the interest rate on a savings account.

Advantages of a Fixed Deposit

Guaranteed returns: The interest rate on a fixed deposit is fixed for the entire tenure. And this is usually higher than savings accounts. Besides, it provides a guaranteed return on the invested amount.

Safety: Fixed deposits are considered a safe investment option. And the reason behind this is that the government insures these deposits up to a certain limit.

Flexibility: Fixed deposits offer a range of tenures to choose from. They allow the depositor to choose a tenure that meets their financial goals and requirements.

Liquidity: Fixed deposits can be prematurely closed in case of an emergency. However, a penalty may be levied in some cases.

What Is a Flexi FD?

Flexi Fixed Deposit (FD) is a type of savings instrument offered by banks and financial institutions.

It is similar to a traditional Fixed Deposit (FD) but with the added advantage of flexibility.

In a Flexi FD, the depositor can choose to withdraw part or all of the deposit before maturity. Moreover, they can do it without having to pay any penalty.

The depositor also has the option to choose the interest rate for their deposit, And there are two kinds of deposit—either a fixed rate or a floating rate. However, that depends on the bank’s offer.

Additionally, the depositor can choose to withdraw the interest earned on their deposit on a:

  • Monthly
  • Quarterly
  • or Annual basis

Advantages of a Flexi FD

Flexibility: The depositor can withdraw part or all of their deposit before maturity. So this, of course, is great financial flexibility.

Guaranteed returns: The interest rate on a Flexi FD is fixed or floating. This offers the depositor a guaranteed return on their investment.

Liquidity: The depositor can access their funds whenever they need to. Furthermore, they can do it without waiting for the deposit to mature.

Top Tips to Choose Between Fixed Deposit and Flexi FD

When choosing between a Fixed Deposit (FD) and a Flexi Fixed Deposit (Flexi FD), consider the following factors:

Financial Goals: Let’s say you have a long-term savings goal and do not need immediate access to your funds. In that case, a Fixed Deposit may be a better option.

On the other hand, a Flexi FD may be more suitable if you need the flexibility to access your funds before maturity.

Interest Rates: Consider the interest rates different banks and financial institutions offer for both FDs and Flexi FDs.

Fixed deposits usually offer higher interest rates compared to Flexi FDs, but the latter provides more flexibility.

Tenure: Choose the tenure that meets your financial goals and requirements. FDs offer a range of tenures to choose from, while Flexi FDs may have restrictions on the minimum and maximum tenures.

Liquidity: If you need immediate access to your funds in case of an emergency, a Flexi FD may be a better option.

However, if you are willing to lock up your funds for a specified period, a Fixed Deposit may be a better option as it offers higher interest rates.

Risk Tolerance: Fixed deposits are considered a safe investment option as the government insures them up to a certain limit.

Flexi FDs may come with a slightly higher risk as the depositor can withdraw their funds before maturity, potentially reducing the stability of their investment.

Final Remarks on The Differences Between FD and Flexi FD

In summary, fixed deposits are a good investment option for individuals looking for a safe and stable return on their investment. Also, if you are willing to leave your money invested for a specified period, this is a good option too.

And these are a good investment option for individuals who require added financial flexibility. But they need to be willing to compromise on higher interest rates compared to traditional FDs.