Fixed Deposit Account: Meaning, Types and Benefits of a Fixed Deposit Account

For years, before the knowledge of what a Fixed Deposit Account became popular, business owners had been searching for an investment type that could be considered safe, provides guaranteed returns over time, and has flexibility in terms of duration. This is because business owners in all regions of the world have had to battle with matters like the effects of climate change, natural disasters, changes in interest rates by Central Banks, and poor economic performance. This led to an increase in the popularity of Fixed Deposit Accounts, as it allow investors to get high returns after a given period.

Business and Non-Business owners can benefit from fixed Investment accounts because the scheme was created to transform investors’ finances by empowering their capital savings. I always tell young people who are thinking of investing that a fixed Investment or deposit is strategically safer because it offers a higher return on investment than compound savings with little to no tangible returns.

What Is A Fixed Deposit Account?

A Fixed Deposit Account also known as Term Deposit or Fixed Investment is an investment scheme through which people invest a certain sum of money at banks like First Bank of Nigeria,  Access Bank Plc, Guaranty Trust Holding Company PLC, and Stanbic IBTC Holdings PLC or non-banking financial company for a fixed period ranging from short-term tenures to long tenures at a predetermined interest rate. The interest rate usually varies from one financial institution to another and is higher than the interest on savings accounts.

5 Types Of Fixed Deposit Accounts in Nigeria

The different categories and types of fixed deposits include:

1. Standard term Deposits:
   Standard fixed deposits allow you to invest capital for a fixed period and a predetermined interest rate. The tenure can range from 1 month up to 10 years. The interest accumulated depends on the financial institution you are doing business with and the duration of the investment; that is, the longer the duration, the higher the interest.
2. Recurring Fixed Deposit:
   Special Fixed Deposits are offered for a special period. Depositing is done in intervals of monthly, Quarterly, 6 months, or yearly for a specified time. At the end of the agreed tenor, your investment can either be reinvested or returned to you with the interest amount agreed. Of course, you will receive your principal plus the interest accumulated in total.
3. Cumulative Fixed Deposit: 
   Cumulative Fixed Deposit is another fixed deposit type wherein you can invest a fixed sum, and interest is paid out upon maturity. This means you can only access your fund at maturity. The interest earned on your deposit cannot be paid out to you at regular intervals.
4. Senior Citizen Fixed Deposit:
   This is the safest type of investment for individuals over 60 years of age, Banks offer a higher interest rate on this type of Fixed Deposit investment. In Nigeria, banks will provide over 25 basis points. They also provide an additional tax benefit, but are only offered to elderly individuals over the age of 60.
5. Corporate Fixed Deposits
   Only corporate organizations can operate this type of Fixed Deposit scheme. Some corporate entities offer fixed deposits where they offer a higher interest rate than even conventional banks, the risk associated with corporate fixed deposits is higher. While Nigerian bank deposits enjoy backing and insurance coverage from the NDIC, corporate fixed deposits do not provide this insurance.

5 Benefits of Opening a Fixed Deposit Account

Among the many benefits of opening a Fixed Investment account, these are five major benefits that everyone, both the employed and business owners, can find attached:

1. Guaranteed Returns: With Fixed Investment, you can rest assured that your principal amount is secure and you will receive predictable returns over a predetermined period. Unlike investing in the stock market, which may result in losses due to market volatility, fixed investments provide assured returns higher than regular savings accounts.

2. Low Risk: As an investor who wishes to invest but is uncomfortable with high risks, fixed Investments provide the opportunity for stability by shielding the investor’s fund from market fluctuations. As a business owner, this will ensure your capital stays safe and allow you to plan for the future confidently.

3. Flexible Tenures: With a range of flexible tenures available, you have the freedom to choose the duration that best suits your business needs. Whether you’re planning for short-term projects or long-term expansion, there’s a tenure option tailored to your requirements.

4. Request for Loans Against Your Savings: Fixed Investment accounts allow you to take loans against your funds at lower interest rates. Your fixed funds serve as collateral, providing a convenient financing solution while preserving the integrity of your investment portfolio. You will be compounding impressive returns on fixed investments and eagerly anticipating the maturity of your interest.

5. Liquidity: Premature withdrawal of capital is permitted, and withdrawal is easy both offline and online,  either through internet banking or mobile banking. However, you will lose some interest due to premature withdrawal before the agreed-upon duration, even if the reason for withdrawal is to tackle emergencies.