Financial Success Guide

What are Fixed Deposits?

Section 23 Module 6

Fixed Deposits

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

  1. 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.
  2. 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.
  3. 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.
  4. 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.