Fixed Deposit (FD) is a financial instrument offered by banks and non-banking financial companies (NBFCs) that allows individuals to deposit a lump sum of money for a fixed tenure at a predetermined interest rate. It is one of the most popular low-risk investment options, providing assured returns irrespective of market fluctuations.

When an investor opens a fixed deposit, the principal amount remains locked for a specific period, which can range from a few days to several years. In return, the bank pays a fixed interest rate that is generally higher than that offered on a regular savings account. The interest can be received periodically ó monthly, quarterly, or annually ó or reinvested to yield cumulative returns at maturity.

The key feature of a fixed deposit is its predictability. Since both the interest rate and maturity amount are predetermined, it provides financial stability and acts as a reliable savings tool. For instance, if you invest ?1,00,000 for 5 years at an interest rate of 7%, you will know the exact amount youíll receive upon maturity.

However, FDs have limited liquidity. Premature withdrawals are allowed but usually attract a penalty and a lower interest rate. Despite this, they remain an essential part of conservative investorsí portfolios due to their safety and guaranteed returns. Additionally, under Section 80C of the Income Tax Act, tax-saving fixed deposits with a lock-in period of five years offer deductions up to ?1.5 lakh.

In summary, a fixed deposit is ideal for individuals seeking capital preservation and predictable income rather than high returns. While it may not beat inflation over the long term, it provides stability and assured earnings, making it a cornerstone of secure financial planning.