What are Fixed Deposits?
Section 23 Module 6
Note: The typical rates of return quoted above are from banks in developed countries. Developing countries typically offer higher rates of interest on fixed deposits.
Fixed Deposits
- When you create a Fixed Deposit in the bank, the main goal is to get a slightly better fixed return on your money than your current account rate of interest, and have accessibility to the money when needed, mostly in case of emergencies.
- The bank offers a fixed rate of return on your money, which is mostly slightly lower than the rate of inflation, but higher than the interest rates on your current account.
- The bank calls your fixed deposit a ‘loan’ from you to them, which has to be returned back to you whenever you need it, or when the deposit matures.
- The bank keeps your money safe, and in turn lends it to others at a higher rate of interest.
Remember - Banks only make money by lending your money to others. They don’t lend their own money.