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What In The World Is A Fixed Deposit, Anyway?

December 2nd, 2009 |

Author: admin

Fixed deposits are often one of the most interesting ways to deposit money into, say, a savings account. Because you are committing to depositing that money week or month after month, banks tend to offer you a few perks. Some will even like you so much that they will offer you a better interest rate on that money as well. But, why? Why is a fixed option better than you just making deposits on your own? First, let’s find out what they are and then we’ll talk about why the fixed is so much more interesting to banks and financial institutions that the standard deposit.

First of all, a ‘fixed’ type of deposit is one that is made at the same rate amount and often times done automatically. These deposits are first agreed upon in terms of how much they will be and when they will be withdrawn. Lastly, these deposits are also automatic. That means that on the given day in the agreed upon terms, the bank will go ahead and debit the money from one account into another. For example, you may make a fixed amount of $100 a week go from your checking account into your bank’s savings account. This way, you are saving money, at a regular rate without forgetting to or using that money for something else. If it isn’t there, chances are good that you won’t spend it.

Okay, so these fixed things are great for individuals who want to save on a regular basis, but how are they good for the banks themselves? It is pretty unlikely that you, the average bank account owner will remember to make your weekly investment of $100 into your account. Who knows what will come up and who knows when you’ll get around to putting it into the account? So, the bank is secure in knowing that on the given day, they will have another $100 to invest of your money.

Is this always a good thing then? It is a great thing for many people who know they are going to have the money in their account, without fear of spending it. You can actually overdraw your account like this, though, so you’ll need to keep good records. The automated aspect of this situation is also nice because it keeps you on track with your goals. You can often deposit the amount that you want, on the day that you want, and you can do it all online as well. Is this the right deposit method for you?

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